In neoclassical economic theory, it is assumed that decision makers, given their knowledge of
utilities, alternatives, and outcomes, can compute which
alternative will yield the greatest subjective (expected) utility.
The term bounded rationality is used to designate models of
rational choice that take into account the cognitive limitations of both knowledge
and cognitive capacity. Bounded rationality is a central theme in behavioral
economics. It is concerned with the ways in which the actual decision-making
process influences the decisions that are eventually reached. To this end, behavioral
economics departs from one or more of the neoclassical assumptions underlying the
theory of rational behavior. The two most important questions
that can be posed are:
Are the assumptions of utility or profit maximization good approximations of real behavior?
Do individuals maximize subjective expected utility?
Simon (1987b) provides an overview of the literature
on these issues.
Research in behavioral economics has adopted specific methodological approaches that complement
traditional statistical and econometric tests of economic models. For
example, experiments are commonly used in behavioral economics, and
survey data are also becoming more important in the process of learning about individuals'
actual decision-making processes.
models of microeconomic decisions,
rational (economic) behavior
Kahnemann, Slovic & Tversky (1982),