Bounded rationality

Bounded rationality (or bounded rationality ) called in economics a behavior that is defined on the one hand and unlimited rationality and constrained optimization, on the other hand also of irrationality. The concept has great significance in the context of the paradigm of the New Institutional Economics.

If decision-makers behave rationally want weighing all information, but their rationality by information gathering costs, insecurity and uncertainty limits, optimization is under constraints, ie rational behavior before.

As irrational refers, for example, a decision that if a person says to think about and to know without any rational basis for decision making and to evaluate, but certainly to know the optimum without. Irrational, it is also, if you have a preference for a Good A on a Good B, a preference for Good B vs. C Good, but a preference of good C compared to A. Good

Limited rational behavior arises because the individuals are exposed to cognitive limitations. Even if they want to optimize their benefits, they can not. Instead, they weigh between the costs for decision-making and the resulting expected benefits they bring. Accordingly, it can not be assumed that the pure profit maximization. Rather, the benefit is a constraint that must be achieved to a certain degree. So Herbert Simon describes a behavior as a limited rational, if you search for alternatives ended when one has found a solution that you are happy ( satisficing ), notwithstanding the fact that there could be a better one. As the search for an optimum is stopped prematurely, one must distinguish the bounded rationality of optimization.

As bounded rationality also applies to the use of simple and fast heuristics that do not use all the information available. Can still be obtained with the aid of such heuristics excellent results.

History

Bounded rationality is a by the U.S. social scientist Herbert Alexander Simon (1916-2001) 1955/56, as bounded rationality introduced concept in decision making ( decision theory). Bounded rationality refers to the fact that decision-making processes are always made only boundedly rational due to limitations of human cognitive abilities. In other words, lack of time, lack of information, inability or other reasons, we do people make decisions sometimes worse than under ideal conditions possible. Fully rational behavior is impossible.

For their research in this area Daniel Kahneman and Vernon L. Smith have received the Nobel Prize in Economics in 2002. My longtime colleague Amos Tversky had died at the time of the award and therefore was not honored as well.

Recognition heuristic ( Heuristic Recognition )

The Rekognitions or recognition heuristic is a model of judgment and decision making for lack of information. It says that if an object is known and another not, and if the visibility is positively correlated with the searched criteria that then the known object has a higher value in terms of the criterion.

Example: Which city is bigger: Berlin or Bitterfeld?

Generally known Berlin and not the other city. The reputation of the city is positively correlated with their size, so you can apply the recognition heuristic.

Often true values ​​of the criterion is not accessible, so you have to rely on a mediator. At the level of research funding a university, the number of publications per year would be a mediator. A mediator must correlate positively with the criterion, so that it allows conclusions on the value of the criterion. In addition, the mediator must correlate with the recognition. This model of ecological rationality is described in the below article by Goldstein and Gigerenzer detail.