Editing Behavioral economics (section)

== Bounded rationality ==
[[File:Herbert simon red complete.jpg|thumb|left|140px|[[Herbert A. Simon]], winner of the 1975 Turing award, the 1978 Nobel Prize in economics, and the 1988 John von Neumann Theory Prize]]
[[Bounded rationality]] is the idea that when individuals make decisions, their [[rationality]] is limited by the tractability of the decision problem, their cognitive limitations and the time available.

[[Herbert A. Simon]] proposed bounded rationality as an alternative basis for the mathematical modeling of [[decision-making]]. It complements "rationality as optimization", which views decision-making as a fully rational process of finding an optimal choice given the information available.<ref name="bounded_rationality_1999">{{cite book|url={{google books |plainurl=y |id=dVMq5UoYS3YC}} |first1=Gerd|last1=Gigerenzer|first2=Reinhard|last2=Selten|title=Bounded Rationality: The Adaptive Toolbox|publisher=MIT Press|year=2002|isbn=978-0-262-57164-7}}</ref> Simon used the analogy of a pair of scissors, where one blade represents human cognitive limitations 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" /> Bounded rationality implicates the idea that humans take shortcuts that may lead to suboptimal decision-making. Behavioral economists engage in mapping the decision shortcuts that agents use in order to help increase the effectiveness of human decision-making. Bounded rationality finds that actors do not assess all available options appropriately, in order to save on search and deliberation costs. As such decisions are not always made in the sense of greatest self-reward as limited information is available. Instead agents shall choose to settle for an acceptable solution. One approach, adopted by [[Richard M. Cyert]] and [[James G. March|March]] in their 1963  book [[A Behavioral Theory of the Firm]], was to view firms as coalitions of groups whose targets were based on satisficing rather than optimizing behaviour.<ref>{{cite book|last1=Cyert|first1=Richard|last2=March|first2=James G.|title=A Behavioral Theory of the Firm|year=1963|publisher=Prentice-Hall, Englewood Cliffs, N.J.}}</ref><ref>{{cite journal |last=Sent|first=E.M.|title=Behavioral economics: How psychology made its (limited) way back into economics.  |journal=History of Political Economy |volume=36 |issue=4 |pages=735–760|year=2004|doi=10.1215/00182702-36-4-735 |hdl=2066/67175 |s2cid=143911190 |hdl-access=free }}</ref>  Another treatment of this idea comes from [[Cass Sunstein]] and [[Richard Thaler]]'s ''[[Nudge (book)|Nudge]]''.<ref name =nudge>{{cite book|title=Nudge: Improving Decisions about Health, Wealth, and Happiness|isbn=978-0-14-311526-7|oclc=791403664|date=April 8, 2008|publisher=Yale University Press|last1=Thaler|first1=Richard H.|last2=Sunstein|first2=Cass R.|title-link=Nudge (book)}}</ref><ref>{{cite book|title=Choice Architecture|last1=Thaler|first1=Richard H.|last2=Sunstein|first2=Cass R.|last3=Balz|first3=John P.|doi=10.2139/ssrn.1583509|ssrn=1583509|date=April 2, 2010|s2cid=219382170}}</ref> Sunstein and Thaler recommend that choice architectures are modified in light of human agents' bounded rationality. A widely cited proposal from Sunstein and Thaler urges that healthier food be placed at sight level in order to increase the likelihood that a person will opt for that choice instead of less healthy option. Some critics of ''Nudge'' have lodged attacks that modifying choice architectures will lead to people becoming worse decision-makers.<ref>{{cite web|last1=Wright|first1=Joshua|first2=Douglas|last2=Ginsberg|title=Free to Err?: Behavioral Law and Economics and its Implications for Liberty|url=http://www.libertylawsite.org/liberty-forum/free-to-err-behavioral-law-and-economics-and-its-implications-for-liberty/|date=February 16, 2012|work=Library of Law & Liberty}}</ref><ref>{{cite book|last1=Sunstein|first1=Cass|title=Going to Extremes: How Like Minds Unite and Divide|url={{google books |plainurl=y |id=jEWplxVkEEEC}}|isbn = 9780199793143|publisher = Oxford University Press |date =2009 }}</ref>