What is ‘bounded rationality’ in economics?

  • This is a theory of economic behaviour which states that human beings make decisions on the basis of limited information and constrained cognitive ability.
  • This is in contrast to the typical assumption in economic models that human beings are perfectly rational and can choose what’s best for them at ease.
  • The idea of bounded rationality was proposed by American economist Herbert A. Simon in his 1957 book Models of Man. Critics, on the other hand, argue that the economic concept of rational decision-making does not deny the possibility of irrational economic behaviour among individuals.


Leave a Reply