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Bounded Rationality
Bounded Rationality
Bounded rationality
Bounded rationality is the idea that in decision-making, rationality of individuals 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. It was proposed by Herbert A. Simon as an alternative basis for the mathematical modeling of decision making, as used in economics and related disciplines; it complements rationality as optimization, which views decision-making as a fully rational process of finding an optimal choice given the information available.[1] Another way to look at bounded rationality is that, because decision-makers lack the ability and resources to arrive at the optimal solution, they instead apply their rationality only after having greatly simplified the choices available. Thus the decision-maker is a satisficer, one seeking a satisfactory solution rather than the optimal one.[2] Simon used the analogy of a pair of scissors, where one blade is the "cognitive limitations" of actual humans and the other the "structures of the environment"; minds with limited cognitive resources can thus be successful by exploiting pre-existing structure and regularity in the environment.[1] Some models of human behavior in the social sciences assume that humans can be reasonably approximated or described as "rational" entities (see for example rational choice theory). Many economics models assume that people are on average rational, and can in large enough quantities be approximated to act according to their preferences. The concept of bounded rationality revises this assumption to account for the fact that perfectly rational decisions are often not feasible in practice because of the finite computational resources available for making them.
Bounded rationality From a computational point of view, decision procedures can be encoded in algorithms and heuristics. Edward Tsang argues that the effective rationality of an agent is determined by its computational intelligence. Everything else being equal, an agent that has better algorithms and heuristics could make "more rational" (more optimal) decisions than one that has poorer heuristics and algorithms.
Notes
[1] Gigerenzer, Gerd; Selten, Reinhard (2002). Bounded Rationality: The Adaptive Toolbox (http:/ / books. google. com/ ?id=dVMq5UoYS3YC& dq="bounded+ rationality"& printsec=frontcover). MIT Press. ISBN0-262-57164-1. . [2] "Bounded rationality: Definition from Answers.com" (http:/ / www. answers. com/ topic/ bounded-rationality). Answers Corporation. . Retrieved 2009-04-12. [3] http:/ / arielrubinstein. tau. ac. il/ book-br. html
References
Elster, Jon (1983). Sour Grapes: Studies in the Subversion of Rationality. Cambridge, UK: Cambridge University Press. ISBN0-521-25230-X. Gigerenzer, Gerd; Selten, Reinhard (2002). Bounded Rationality. Cambridge: MIT Press. ISBN0-262-57164-1. Hayek, F.A (1948) Individualism and Economic order Kahneman, Daniel (2003). "Maps of bounded rationality: psychology for behavioral economics". The American Economic Review 93 (5): 144975. doi:10.1257/000282803322655392. March, James G. (1994). A Primer on Decision Making: How Decisions Happen. New York: The Free Press. ISBN0-02-920035-0. Rubinstein, Ariel (1998). Modeling bounded rationality. MIT Press. ISBN0-585-05347-2. Simon, Herbert (1957). "A Behavioral Model of Rational Choice", in Models of Man, Social and Rational: Mathematical Essays on Rational Human Behavior in a Social Setting. New York: Wiley. Simon, Herbert (1990). "A mechanism for social selection and successful altruism". Science 250 (4988): 16658. doi:10.1126/science.2270480. PMID2270480. Simon, Herbert (1991). "Bounded Rationality and Organizational Learning". Organization Science 2 (1): 125134. doi:10.1287/orsc.2.1.125. Tisdell, Clem (1996). Bounded Rationality and Economic Evolution: A Contribution to Decision Making, Economics, and Management. Cheltenham, UK: Brookfield. ISBN1-85898-352-5. Tsang, E.P.K. (2008). "Computational intelligence determines effective rationality". International Journal on Automation and Control 5 (1): 636. doi:10.1007/s11633-008-0063-6. Williamson, Oliver E. (1981). "The economics of organization: the transaction cost approach". American Journal of Sociology 87 (3): 548577 (http://www.polisci.ucsd.edu/gcox/06 Ollie.pdf) (press +)..
External links
Mapping Bounded Rationality by Daniel Kahneman (http://choo.fis.utoronto.ca/FIS/courses/lis2149/ kahneman.NobelPrize.pdf) Artificial Intelligence and Economic Theory (http://huwdixon.org/SurfingEconomics/chapter7.pdf) chapter 6 of Surfing Economics (http://huwdixon.org/SurfingEconomics/index.html) by Huw Dixon.
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