Editing Bounded rationality (section)

==Background and motivation==
{{em|Bounded rationality}} was coined by [[Herbert A. Simon]], where it was proposed as an alternative basis for the mathematical and neoclassical economic modelling of [[decision-making]], as used in [[economics]], [[political science]], and related disciplines. Many [[economics]] models assume that agents are on average rational, and can in large quantities be approximated to act according to their [[preference]]s in order to maximise [[utility]].<ref name=":0" /> With bounded rationality, Simon's goal was "to replace the global rationality of [[Homo economicus|economic man]] with a kind of rational behavior that is compatible with the access to information and the computational capacities that are actually possessed by organisms, including man, in the kinds of environments in which such organisms exist."<ref>{{Cite journal|last=Simon|first=Herbert A.|date=1955-02-01|title=A Behavioral Model of Rational Choice|url=https://academic.oup.com/qje/article/69/1/99/1919737|journal=The Quarterly Journal of Economics|language=en|volume=69|issue=1|pages=99–118|doi=10.2307/1884852|issn=0033-5533|jstor=1884852}}</ref> Soon after the term bounded rationality appeared, studies in the topic area began examining the issue in depth. A study completed by Allais in 1953 began to generate ideas of the irrationality of decision making as he found that given preferences, individuals will not always choose the most rational decision and therefore the concept of rationality was not always reliable in economic predictions.<ref>Schiliró, D. (2013). Bounded Rationality: Psychology, Economics and the Financial Crises. Theoretical and Practical Research in Economic Fields, 4(1(7)), 97-108.</ref>

In ''Models of Man'', Simon argues that most people are only partly rational, and are irrational in the remaining part of their actions. In another work, he states "boundedly rational agents experience limits in formulating and solving complex problems and in processing (receiving, storing, retrieving, transmitting) information".<ref>[[Oliver E. Williamson]], p.&nbsp;553, citing Simon.</ref> Simon used the analogy of a pair of scissors, where one blade represents "cognitive limitations" of actual humans and the other the "structures of the environment", illustrating how minds compensate for limited resources by exploiting known structural regularity in the environment.<ref name="bounded_rationality_1999" />

Simon describes a number of dimensions along which classical models of rationality can be made somewhat more realistic, while remaining within the vein of fairly rigorous formalization. These include:

* limiting the types of [[utility]] functions
* recognizing the costs of gathering and processing information
* the possibility of having a [[vector (geometry)|vector]] or multi-valued utility function

Simon suggests that economic agents use [[heuristics in judgment and decision-making|heuristics]] to make decisions rather than a strict rigid rule of optimization. They do this because of the complexity of the situation. An example of behaviour inhibited by heuristics can be seen when comparing the cognitive strategies utilised in simple situations (e.g. tic-tac-toe), in comparison to strategies utilised in difficult situations (e.g. chess). Both games, as defined by [[game theory]] economics, are finite games with perfect information, and therefore equivalent.<ref name=":2">{{Citation|last=Bendor|first=John|title=Bounded Rationality|date=2015|url=http://dx.doi.org/10.1016/b978-0-08-097086-8.93012-5|encyclopedia=International Encyclopedia of the Social & Behavioral Sciences|pages=773–776|publisher=Elsevier|doi=10.1016/b978-0-08-097086-8.93012-5|isbn=978-0-08-097087-5|access-date=2020-11-01}}</ref> However, within chess, mental capacities and abilities are a binding constraint, therefore optimal choices are not a possibility.<ref name=":2" /> Thus, in order to test the mental limits of agents, complex problems, such as those within chess, should be studied to test how individuals work around their cognitive limits, and what behaviours or heuristics are used to form solutions<ref>{{Cite journal|last1=Rosenzweig|first1=M|last2=Porter|first2=L|date=1990|title=Invariants of Human Behaviour|journal=[[Annual Review of Psychology]]|volume=41|pages=1–19|doi=10.1146/annurev.ps.41.020190.000245|pmid=18331187|doi-access=free}}</ref>

Anchoring and adjustment are types of heuristics that give some explanation to bounded rationality and why decision makers do not make rational decisions. A study undertaken by Zenko et al. showed that the amount of physical activity completed by decision makers was able to be influenced by anchoring and adjustment as most decision makers would typically be considered irrational and would unlikely do the amount of physical activity instructed and it was shown that these decision makers use anchoring and adjustment to decide how much exercise they will complete.<ref>Zenko, Z., Ekkekakis, P., & Kavetsos, G. (2016). Changing Minds: Bounded Rationality and Heuristic Processes in Exercise-Related Judgments and Choices. Sport, Exercise, and Performance Psychology, 5(4), 337-351. https://doi.org/10.1037/spy0000069</ref>

Other heuristics that are closely related to the concept of bounded rationality include the [[availability heuristic]] and [[representativeness heuristic]]. The availability heuristic refers to how people tend to overestimate the likelihood of events that are easily brought to mind, such as vivid or recent experiences. This can lead to biased judgments based on incomplete or unrepresentative information.<ref>{{Cite journal |last1=Tversky |first1=Amos |last2=Kahneman |first2=Daniel |date=1973-09-01 |title=Availability: A heuristic for judging frequency and probability |url=https://dx.doi.org/10.1016/0010-0285%2873%2990033-9 |journal=Cognitive Psychology |volume=5 |issue=2 |pages=207–232 |doi=10.1016/0010-0285(73)90033-9 |issn=0010-0285}}</ref> The representativeness heuristic states that people often judge the probability of an event based on how closely it resembles a typical or representative case, ignoring other relevant factors like base rates or sample size.<ref>{{Cite journal |last1=Tversky |first1=Amos |last2=Kahneman |first2=Daniel |date=September 27, 1974 |title=Judgment under Uncertainty: Heuristics and Biases |url=https://www2.psych.ubc.ca/~schaller/Psyc590Readings/TverskyKahneman1974.pdf |journal=Science|volume=185 |issue=4157 |pages=1124–1131 |doi=10.1126/science.185.4157.1124 |pmid=17835457 |bibcode=1974Sci...185.1124T }}</ref> These mental shortcuts and systematic errors in thinking demonstrate how people's decision-making abilities are limited and often deviate from perfect rationality.  

===Examples===
{{Original research section|date=August 2023}}
[[File:Oudewater waitress 2010-07-18.jpg|thumb|193x193px]]
An example of bounded rationality in individuals would be a customer who made a suboptimal decision to order some food at the restaurant because they felt rushed by the waiter who was waiting beside the table. Another example is a trader who would make a moderate and risky decision to trade their stock due to time pressure and imperfect information of the market at that time.

In an organisational context, a CEO cannot make fully rational decisions in an ad-hoc situation because their cognition was overwhelmed by a lot of information in that tense situation. The CEO also needs to take time to process all the information given to them, but due to the limited time and fast decision making needed, they will disregard some information in determining the decision.

Bounded rationality can have significant effects on political decision-making, voter behavior, and policy outcomes. A prominent example of this is heuristic-based voting. According to the theory of bounded rationality, individuals have limited time, information, and cognitive resources to make decisions. In the context of voting, this means that most voters cannot realistically gather and process all available information about candidates, issues, and policies. Even if such information were available, the time and effort required to analyze it would be prohibitively high for many voters. As a result, voters often resort to heuristics, which allow voters to make decisions based on cues like party affiliation, candidate appearance, or single-issue positions, rather than engaging in a comprehensive evaluation of all relevant factors. For example, a voter who relies on the heuristic of party affiliation may vote for a candidate whose policies do not actually align with their interests, simply because the candidate belongs to their preferred party.<ref>{{Cite journal |last=Wang |first=X. T. |date=July 3, 2007 |title=Decision heuristics as predictors of public choice |url=https://onlinelibrary.wiley.com/doi/10.1002/bdm.577 |journal=Journal of Behavioral Decision Making |language=en |volume=21 |issue=1 |pages=77–89 |doi=10.1002/bdm.577 |issn=0894-3257}}</ref>

Even without heuristic-based voting, many voters do not consider the feasibility or consequences of sweeping goals claimed by candidates.  For example, everyone would prefer to pay less tax all else being equal.  A candidate who promises to cut taxes without cutting services is likely to get votes, even though the goal is infeasible.  This is because the voters do not think the issue through.  Similarly, a person who depends upon a government service may vote for a candidate who promises to cut "waste", even if that "waste" consists of the service that the person depends upon.  This occurs because the person has not investigated the details of the policy, which is bounded rationality. Since the very rich have more resources to determine which policies are actually in their interest than the poor do, this bounded rationality has a bias towards policies that favour the rich at the expense of the poor.

Similarly, the politics of fear relies on bounded rationality: a politician creates fear of somebody (bankers, migrants, a [[deep state]], [[communism|communists]]) and promises to keep people safe from that threat, relying on people not to evaluate the threat properly, nor to consider the role the candidate may have played in creating the threat. This is at the heart of [[populism]], and why wartime leaders gain popular support.  A similar effect occurs when voters believe that the current politician is performing badly and "the alternative can't be any worse", without paying enough attention to the policies of the alternative.