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rationality, bounded

Herbert A. Simon
From The New Palgrave Dictionary of Economics, Second Edition, 2008
Edited by Steven N. Durlauf and Lawrence E. Blume
Alternate versions available: 1987 Edition
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‘Bounded rationality’ refers to rational choice that takes into account the cognitive limitations of the decision-maker – limitations of both knowledge and computational capacity. It is a central theme in the behavioural approach to economics. Theories of bounded rationality can be generated by relaxing one or more of the assumptions of subjective utility theory underlying neoclassical economics. They insist that the model of human rationality must be derived from detailed and systematic empirical study of human decision-making behaviour in laboratory and real-world situations. For example, a satisficing strategy may be postulated instead of the maximization of a utility function.
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How to cite this article

Simon, Herbert A. "rationality, bounded." The New Palgrave Dictionary of Economics. Second Edition. Eds. Steven N. Durlauf and Lawrence E. Blume. Palgrave Macmillan, 2008. The New Palgrave Dictionary of Economics Online. Palgrave Macmillan. 17 January 2018 <http://www.dictionaryofeconomics.com/article?id=pde2008_B000176> doi:10.1057/9780230226203.1391

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