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Bounded rationality

Many models of human behavior in the Social sciences assume that humans can be reasonably approximated or described as "rational" entities, especially as conceived by Rational choice theory.

Some models assume that people are "hyperrational", and would never do anything to violate their preferences.

Other models, in contrast, posit a more bounded rationality; "boundedly rational agents experience limits in formulating and solving complex problems and in processing (receiving, storing, retrieving, transmitting) information" (Williamson, p. 553, quoting Simon). Simon, who some claim coined the term, describes a number of dimensions along which "classical" models of rationality can be made somewhat more realistic, while sticking within the vein of fairly rigorous formalization. These include:

  • limiting what sorts of utility functions there might be
  • recognizing the costs of gathering and processing information
  • the possibility of having a "vector" or "multi-valued" utility function.

See also:


  • Simon, Herbert (1957). "A Behavioral Model of Rational Choice", in Models of Man
  • Williamson, Oliver (1981). "The Economies of Organization: The Transaction Cost Approach". American Journal of Sociology. Vol 87, pp. 548--577

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