Why our decisions may not be optimal and are limited by time, information, and mental capacity.


Bounded Rationality

, explained.

What is Bounded Rationality?

A human decision-making process in which we attempt to satisfice, rather than optimize. In other words, we seek a decision that will be good enough, rather than the best possible decision.

Why does it happen?

The reason for doing this, given that optimal decisions will be better than satisfactory decisions, is that we have limited cognitive and temporal resources. It is therefore impossible to know what decision is best. As a result, we pick the best solution we can figure out, even if we don’t know that it is optimal. While bounded rationality assumes more rational decisions than most behavioral economists believe exists, it was important as a first step in disputing the rational actor model of economics.


For example, you are at a restaurant, and deciding whether to order the fish or the chicken. You could analyze the expected taste of each option, walk around the restaurant to find all chicken and fish eaters and ask their opinion, calculated the expected harm created by each additional calorie in the chicken, and so on. This would likely create an optimal decision, but is clearly not a reasonable way to decide. Instead, we satisfice, and pick quickly based on one or two factors, resulting in a decision that will be less optimal but still satisfactory.

Further reading