Economics Dictionary of Arguments

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Bounded rationality: Bounded rationality is a concept suggesting that decision-making is limited by cognitive abilities, information, and time constraints. It acknowledges that individuals make choices based on available information, heuristics, and simplified models rather than exhaustive analysis, leading to satisficing outcomes rather than always optimizing decisions in complex situations. See also Decisions, Decision theory, Rationality.
Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Lexicon of Arguments.

Author Concept Summary/Quotes Sources

Herbert A. Simon on Bounded Rationality - Dictionary of Arguments

Parisi I 60
Bounded rationality/Herbert Simon/Jolls: The “bounded rationality” of Herbert Simon (1947(1), 1955(2), 1979(3)) is justifiably the centerpiece of behavioral law and economics, which offers economic analysis of law rooted in the behavior of real-world rather than idealized human beings (Jolls, 2010)(6). Because it is conventional to judge economic analysis—of legal rules or otherwise—on the basis of the accuracy of its predictions, idealized assumptions about human behavior do not automatically invalidate economic analysis based on those assumptions (Friedman, 1953)(4). It should not be surprising, however, to find that unrealistic assumptions often generate poor predictions (Thaler, 1991)(5). In such circumstances, behavioral economics suggests that analyzing the behavior of boundedly rational actors will generally produce greater predictive power. The concept of bounded rationality reshaped itself over the course of Simon’s scholarly career. Originating as “fail[ing] to know all the alternatives, uncertainty about relevant exogenous events, and inability to calculate”—in sum, in Simon’s term, a lack of “omniscience”—bounded rationality later came to give significant emphasis to a broader decision-related notion of “satisficing,” or, as Simon phrased it in his Nobel Lecture, accepting “an alternative for choice meeting [the individual’s] level of aspiration” regardless of whether that alternative was “optimal” for the individual (Simon, 1979(3), pp. 502, 503). >Bounded Rationality/Jolls
, >Bounded rationality/Economic theories, >Non-omniscience/Jolls.
Parisi I 62
„Satisficing“/Herbert Simon/example: As an (...) illustration of the Simonian notion of an individual “satisficing” rather than choosing the option that is “optimal,” imagine an individual assessing whether a price offered for property (...) is at or above a level considered to be “acceptable.” The individual, Simon writes, “may regard $15,000 as an ‘acceptable’ price, anything over this amount as ‘satisfactory,’ anything less as ‘unsatisfactory’ ” and, accordingly, may accept the first offer received at or above $15,000 regardless of whether such acceptance is “optimal” (Simon, 1955(2), p. 104). Cf. >Plea bargain/Bibas.
>Availability heuristic/Economic theories.

1. Simon, Herbert A. (1947). Administrative Behavior: A Study of Decision-Making Processes in Administrative Organization. New York: Macmillan.
2. Simon, Herbert A. (1955). “A Behavioral Model of Rational Choice.” Quarterly Journal of Economics 69: 99–118.
3. Simon, Herbert A. (1979). “Rational Decision Making in Business Organizations.” American Economic Review 69: 493–513.
4. Friedman, Milton (1953). “The Methodology of Positive Economics,” in Essays in Positive Economics, 3–43. Chicago: University of Chicago Press.
5. Thaler, Richard H. (1991). The Winner’s Curse: Paradoxes and Anomalies of Economic Life. New York: Free Press.
6. Jolls, Christine (2010). “Governing America: The Emergence of Behavioral Law and Economics,” Max Weber Lecture.

Jolls, Christine, „Bounded Rationality, Behavioral Economics, and the Law“. In: Parisi, Francesco (ed) (2017). The Oxford Handbook of Law and Economics. Vol 1: Methodology and Concepts. NY: Oxford University Press.

Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments
The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition.

psySimn II
Herbert A. Simon
Models of Thought New Haven 1979

Simon I
Herbert A. Simon
The Sciences of the Artificial Cambridge, MA 1970

Parisi I
Francesco Parisi (Ed)
The Oxford Handbook of Law and Economics: Volume 1: Methodology and Concepts New York 2017

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