bounded rationality

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The argument that there is a finite limit to the amount of information the human brain can hold and process. Teamwork and computers can vastly increase the amount of information that can be collected, and the calculations that can be performed, but using the information and understanding the implications of the calculations are still subject to severe limits. Bounded rationality casts doubt on the model of rational economic choice as considering all possible alternatives and choosing the best, or optimization. The theory of satisficing assumes that individuals and organizations consider only a relatively small number of alternatives, and frequently stop searching once they find a tolerable course of action, rather than seeking the best possible. See also behavioural economics.

Subjects: Economics.

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