Define bounded rationality and explain why bounded rationality might be a more realistic assumption for much of human behavior than pure rational choice.

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Quizplus · Accepted Answer

The Answer is Bounded rationality is rationality based on rules of thumb, such as "you get what you pay for" or "follow the leader." Even though such rules of thumb do not result in utility maximization, they may be more realistic assumptions for much of human behavior because the decision-making demands of pure rational choice are beyond human capability. Rational choice requires the comparison of the ratio of MU to price for different consumption possibilities. This may seem a reasonable procedure when a small number of alternatives are involved. But to engage in pure rational choice when a very large number of alternatives are involved (such as all the different consumption possibilities that might contribute to utility) is not realistically possible. Bounded rationality avoids having to make all these calculations, by following rules of thumb.

Define Bounded Rationality and Explain Why Bounded Rationality Might Be