The notion that decision makers simply do not have the ability or resources to process all available information and alternatives to make an optimal decision is known as bounded rationality.
What is meant by bounded rationality?
- Because of our cognitive limitations, the knowledge that is accessible to us, and the passage of time, bounded rationality depicts how human decision-making deviates from perfect economic rationality. We frequently select decisions that are agreeable rather than the "best."
- Bounded rationality is the theory that, given certain constraints, rational decision-making is constrained, leading rational people to choose a satisfactory course of action rather than the best one.
- Companies that have constrained resources and are limited in their ability to interpret information are said to have bounded rationality because they lack perfect information, or context information about the outcomes of their actions, for example.
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