18 Jun 08 Bounded Rationality

Bounded Rationality is the process of constructing simplified models that extract the essential features from the problems without capturing all their complexities. The decision maker settles for the early solution that is good enough. In Layman’s language, the decision maker finds out the earliest available alternatives, takes certain things for granted and acts on it. The decision maker takes generalized judgmental shortcuts, which are also called Heuristics. For e.g. if two students from a particular management institute show exemplary performance in the job, the judgmental shortcut is “every student from this institute is good”, and vice versa.