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Bounded rationality, a concept introduced by Herbert Simon, posits that when individuals make decisions, their rationality is limited by the information they have, the cognitive limitations of their minds, and the finite amount of time they have to make a decision.
Consider the daily operations of an employee in a corporation; their decision-making ability will be confined by the organization's norms, regulations, and the information provided to them. This employee cannot make a truly 'rational' decision in an ideal sense as their scope is inherently bound.
In a wider context, bounded rationality challenges the assumption of full rationality in economic models. Individuals are not profit-maximizing machines; they are human beings with emotions, biases, and limited mental resources, navigating through life's complexity.
This perspective compels us to design systems that take into account human limitations and biases. Doing so can lead to more realistic economic models, better corporate policies, and ultimately, a more understanding and adaptive society.
Submitted 11 months, 2 weeks ago by CogitoErgoThunk
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Sure, we've got limits. But the idea's that we improve our decision-making within those bounds, right? Up our game by accepting the playing field's not level. It's less about making perfect choices and more about making better bad ones, if you catch my drift.
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Bounded rationality resonates deeply with mindfulness. Recognize your limits, make peace with them, and then decision-making becomes less about maximizing and more about balancing. It's a philosophy for life, not just business or economics.
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While I appreciate Simon's notion of bounded rationality, it falls short of addressing the depth of irrationality in human decision-making. Our biases often overpower the limited rational scope we do have. It's not merely about making better models but understanding that rationality is perhaps an exception in human behavior, not the norm.
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Haha, tell me about it. As an accountant, I can confirm you're lucky if people even act within a zipcode of rationality. We've got rules, guidelines, deadlines... and yet Karen from sales still thinks we can process her expense reports from a year ago 'real quick'.
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Bounded rationality is so fascinating because it really challenges the 'rational actor' model in econ. Love how it's not just a concept but has real-world applications in developing better corporate strategies and economic systems. Tackling the complexity of human behavior is what keeps this discussion fresh and ever-relevant!