Bounded rationality refers to the concept that individuals have limited cognitive abilities and resources, and therefore cannot fully analyze and consider all available options or information when making decisions. As a result, people use simplified decision-making processes, known as heuristics, to make decisions in a timely and efficient manner.
One of the key ways in which bounded rationality manifests is through the use of heuristics, or mental shortcuts, to make decisions. These heuristics allow people to make relatively quick and efficient decisions based on limited information, rather than thoroughly analyzing all available options. While this can be useful in many situations, it can also lead to biased or suboptimal decision-making, as people may overlook important information or consider only a limited range of options.
Bounded rationality can also be influenced by the availability of information and resources. When people have access to limited information or resources, they may be more likely to rely on heuristics and simplified decision-making processes, rather than considering all available options. This can lead to biased or suboptimal decision-making, as people may be unable to fully consider all relevant information or options.
The concept of bounded rationality can have significant consequences, as it can lead people to make decisions that are not fully informed or based on all available information. In addition, it can contribute to the formation of cognitive biases, as people may rely on heuristics and simplified decision-making processes that are prone to biases and errors.
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