Bounded rationality: definition, examples and practical tips

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Introduction
As a business owner, you must make dozens of decisions every day. From small choices about office supplies to strategic decisions about investments or personnel management. In an ideal world, you would be able to analyze all available information for each decision and make the perfectly rational choice. But reality is different: you have limited time, limited information and a limited ability to process everything. This phenomenon is called bounded rationality.

In this article, we explore how you can embrace bounded rationality and use it to achieve better business results.

What is bounded rationality?
Bounded rationality or limited rationality is our tendency albania mobile numbers list to go for good, rather than for better or best (Simon, 1955).

Herbert Simon, who won the Nobel Prize in Economics for his work on bounded rationality, showed that we engage in limited rationality when we make choices. Especially when we have little time, we often choose options that meet minimal requirements - such as a competitive price - without extensively examining all the alternatives. We then settle for a "good" rather than the "best" solution simply because we don't have the motivation, time or energy to look further.

This does not mean that we make bad choices. On the contrary, we often make fine decisions that meet our most important criteria. But there could theoretically be better options that we haven't considered. It's a pragmatic approach: achieving a satisfactory result with reasonable effort, rather than endlessly searching for the perfect alternative. Simon called this "satisficing" - a combination of "satisfying" and "sufficing. It is a strategy that helps us function effectively in a complex world where we simply cannot know or consider everything.