Bounded Rationality

Bounded rationality is a grand theme that cuts across various areas of the social sciences, sharing a common interest in the determinants and the consequences [Page 107]of human action. At the root of this concept stands explicit recognition that when dealing with a problem of choice, humans—be they consumers, producers, or policymakers—can rely on limited capacity, at best, to process relevant information, and their decisions will be affected by cognitive or cultural biases. Applied to consumer demand, bounded rationality entails a range of situations in which individuals cannot scrutinize at once the entire spectrum of goods and services, are not always capable of matching their preferences with the appropriate purchases, or do not have continual knowledge of the variety of ways in which needs can ...