| Bounded Rationality |
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| CATEGORIES ABOUT BOUNDED RATIONALITY | |
| game theory | |
| underlying principles of microeconomic behavior | |
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Many Economics models assume that people are hyperrational, and would never do anything to violate their Preference s. Herbert Simon , in ''Models of My Life'', points out that most people are only partly rational, and are in fact emotional/irrational in the remaining part of their actions. He gives Albert Einstein as an example of bounded rationality. In other work, he states "boundedly rational agents experience limits in formulating and solving complex problems and in processing (receiving, storing, retrieving, transmitting) Information " (Williamson, p. 553, quoting Simon). Simon, who some claim coined the term, describes a number of dimensions along which "classical" models of rationality can be made somewhat more realistic, while sticking within the vein of fairly rigorous formalization. These include:
In addition, bounded rationality suggests that economic agents employ the use of heuristics to make decisions rather than a strict rigid rule of optimization in light of the complexity of the situation, the inability to process and compute all alternatives due to deliberation costs and presence of other economic activities where similar decision making is required. Daniel Kahneman proposes bounded rationality as a model to overcome some of the limitations of the rational-agent models in Economic literature. REFERENCES
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