How Do You Spell BOUNDED RATIONALITY?

Pronunciation: [bˈa͡ʊndɪd ɹˌaʃənˈalɪti] (IPA)

Bounded rationality is spelled as /ˈbaʊndɪd ˌræʃəˈnælɪti/. The first syllable, "bound," rhymes with "found," while the second syllable, "ed," is pronounced "id." The stress is on the second syllable, "raSHUHnality." This term refers to the idea that humans are not always capable of making completely rational decisions, as they are limited by time, information, and cognitive capacity. It is an important concept in economics and psychology, as it helps explain how individuals make decisions under uncertain conditions.

Meaning and Definition
Etymology
Basic Check Advanced Check

BOUNDED RATIONALITY Meaning and Definition

  1. Bounded rationality is a concept in behavioral economics and decision-making that refers to the limitations and constraints faced by individuals when making decisions. It states that human beings have a limited capacity to acquire, process, and analyze information, leading to a need for simplification and shortcuts in decision-making processes.

    In other words, bounded rationality suggests that individuals often make decisions that are not perfectly rational or optimal due to their cognitive limitations and the complexity of the choices they must evaluate. Instead, people tend to rely on heuristics, rules of thumb, and approximations to simplify the decision-making process.

    These cognitive limitations can include factors such as time constraints, limited information availability, and the inability to process all potential alternatives comprehensively. As a result, decisions are often made based on imperfect or incomplete information, which can lead to biases, errors, and suboptimal outcomes.

    Bounded rationality challenges the traditional economic assumption of perfect rationality by recognizing that decision-making is often influenced by psychological, social, and situational factors. It suggests that individuals strive for "good enough" rather than "optimal" solutions, making decisions that are satisfactory given the available resources and information.

    Overall, bounded rationality highlights the cognitive limitations individuals face when making decisions and acknowledges that human decision-making is a complex and imperfect process.

Etymology of BOUNDED RATIONALITY

The term "bounded rationality" was coined by Herbert Simon, an American economist and cognitive psychologist, in the 1950s. The word has its roots in the field of decision-making and refers to the idea that individuals' rationality, or ability to make optimal decisions, is limited or bounded by various factors.

The term "rationality" itself comes from the Latin word "rationalis", meaning "rational" or "reasonable". It is derived from the Latin word "ratio", which means "calculation" or "reason". The concept of rationality in decision-making suggests that individuals make choices based on logical reasoning and consideration of the available information.

The word "bounded" in "bounded rationality" indicates that there are constraints or limitations on individuals' decision-making capabilities.