### 날짜 : 2024-03-25 14:09 ### 주제 : Bounded Rationality #economics ---- Bounded rationality is a concept that challenges the notion of the 'rational man' in classical and neoclassical economic theories, where it is assumed that individuals have access to all information, unlimited cognitive processing capacity, and complete self-control. This traditional view holds that economic agents are capable of making optimal decisions that maximize their utility. Herbert A. Simon introduced the concept of bounded rationality to account for the ways in which the rationality of human behavior is limited or 'bounded' by various factors. Here are the key aspects of bounded rationality: #### Information Limitations One of the primary bounds of rationality is information. No individual can have complete information about all possible choices, outcomes, and consequences of every decision. There's just too much data in the world, and it’s often costly or impossible to gather and process it all. #### Cognitive Limitations Humans have limited cognitive resources. Our brains can only process so much information, and our ability to handle complex calculations is limited. In many cases, rather than optimizing, people satisfice – they choose an option that is good enough, given their limited cognitive capabilities and the available information. - Satisfice is a term used in decision-making and refers to a strategy where the minimum requirements for achieving a satisfactory outcome are pursued instead of striving for an optimal solution. #### Time Constraints There is often not enough time to gather and process information even if an individual had the cognitive ability to do so. Time constraints force individuals to make decisions without evaluating all potential outcomes or considering all alternatives. #### Emotional Influence Emotions can influence decision-making, leading to choices that are not solely based on rational assessment. Stress, mood, and other emotional factors can cloud judgment and lead to decisions that may conflict with an individual’s long-term best interests. #### Complexity of the Environment The world is complex and unpredictable, which means that it's not always clear which choice might be the best. This complexity requires simplifications and heuristics to make decision-making manageable, which might sacrifice the theoretical idea of optimal choices. #### Heuristics and Biases Given these limitations, individuals often resort to mental shortcuts known as heuristics. These can be helpful, but they can also lead to systematic biases. For instance, people might overvalue immediate rewards (present bias) or rely too much on information that comes to mind most easily (availability heuristic) when making choices. Bounded rationality is a very influential concept because it bridges the gap between the predictions of idealized economic models and the reality of human behavior. It has laid the groundwork for several subfields of economics, including behavioral economics and finance, that strive to build models accounting for realistic human behaviors in varying economic environments. #### Application in Economic Policy and Business Understanding bounded rationality gives policymakers and businesses realistic expectations about consumer behavior. For instance, realizing that individuals won't always make the best long-term financial decisions due to bounded rationality can lead to policies that help protect consumers, such as mandatory disclosures, cooling-off periods for certain contracts, or the design of default options in retirement savings plans that promote long-term saving. > In business, acknowledging bounded rationality can lead to marketing strategies that don't overload consumers with information but instead present key information clearly and effectively. It also justifies the existence and importance of brands, as they act as heuristics that simplify decision-making for consumers.