The term bounded rationality is used to designate rational choice that takes 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 decisions. Theories of bounded rationality relax one or more assumptions of standard expected utility theory.
See also: equilibrium, expected utility, models of microeconomic decisions, behavioral economics, rational behavior
Literature: Savage (1954), Simon (1987b)
Entry by: Joachim Winter
June 17, 1999
Direct questions and comments to: Glossary master