Bounded Rationality Theory

 Behavioral Economics
Bounded rationality is a concept proposed by Economist
Herbert Simon that challenges the notion of human
rationality as implied by the concept of homo economicus.

 It states that people are not inclined to gather all of the information required
to make a decision. This is because we're incapable of getting all the
information out there and couldn't even digest the information if we were
able to get it in the first place. Therefore, you're more likely to pick
something that meets maybe one or two criteria. 
 An economic man or ‘homo economicus’ has complete information, assuming
that he knows not only all the courses of action, but also his results. It is
sensitive to the available alternatives. The crucial fact about the economic
man is that he is rational. This means that their preferences are complete,
transitive and that there are perfect substitutes; and on the other hand he
makes his decisions to maximize his utility.
Example: Buying Cereals
 Bounded Rationality and Rational Choice
Bounded Rationality Rational Choice

Necessity of assistance of the bounded mental capacity of the Unbounded cognitive ability of the subject who
subject that decides. decides.

Knowledge of an acceptable set of actions. Knowledge of all available actions.

Approximate and heterogeneous knowledge of the Numerical knowledge of all the consequences of
consequences.  actions.

Evolutionary and unsettled preferences. Stable and ordered preferences.

Temporary and cost limitation that affects the quality of the Unbounded or non-influential resources in the
decision. decision-making process.

Search for a satisfactory result. Search for the best possible result.

Help the one who decides to understand what will happen if

Inform the one who decides about what to do.
he does something. 
Bounded Rationality Theory in Decision
Making