Question 1

1. What is bounded rationality?

Accepted Answer

Bounded rationality is a decision-making process where we try to satisfy our objectives as per pre-determined opinions instead of aiming for the best outcome.

Question 2

2. What are The  basic parameters of bounded rationality

Accepted Answer

There are three basic parameters of bounded rationality.n1. Time constraintsn2. Cognitive limitationsn3. Incomplete information

Question 3

3. What is An example of bounded rationality

Accepted Answer

Under normal circumstances, Mr Foley would visit a couple of stores to buy the best pair of shoes as per his liking. However, due to time constraints, he is satisfied with this situation. Since he needs any pair of shoes, he prioritises that above his budget, style and other preferences. As a result, Mr Foley ends up paying twice his budget for a pair of shoes, which he would not do otherwise if the urgency weren't there

Question 4

4. Why is bounded rationality critical?

Accepted Answer

1. Bounded rationality is essential to businesses that use it to their benefit. Companies use individuals' flawed or bounded rationality decision-making as a marketing strategy.n2. Most businesses label their goods with attractive adjectives and qualifiers without  significance. Hence, consumers who want to understand the hidden agenda of a company's marketing strategy must know how companies use customers' decision-making based on bounded rationality to their benefit.n3. Companies know that customers do not have much time to go through the fine print or examine all information on the products they want to purchase.n4.  Bounded rationality causes human beings to go for good choices instead of the best ones.

Question 5

5. How does the Psychology of bounded rationality help in making smarter decisions

Accepted Answer

American political scientist, Herbert Simon, challenged this view with his idea of bounded rationality, which states that neoclassical economics takes the back seat because of the effect of bounded rationality. Satisficers are not adept at making consistent decisions. They always decide based on morality, social standards, affection, justice and peer influences, subject to many forces, including our prejudices. They might even make decisions in the heat of the moment without thinking about repercussions.

Table of Contents

The Psychology of Bounded Rationality: How to Make Smarter Decisions