Bounded Rationality

A decisionmaker is said to exhibit bounded rationality when he or she violates some commonly accepted precept of rational behavior but nevertheless acts in a manner consistent with the pursuit of an appropriate set of goals or objectives. This definition is, of course, not entirely satisfactory, in that it specifies neither the precept being violated nor conditions under which a set of goals may be considered appropriate. But the concept of bounded rationality has always been somewhat ill defined in just these respects.

Some examples may help clarify these ideas. When the precept being violated is to “buy footwear that fits one's feet” (an admonition that will no doubt find wide acceptance), the consumer's action might be to purchase a pair of shoes that is instead one-half size too large. This behavior would be considered boundedly rational if the shoes being purchased were needed for a wedding this afternoon, and if a perfectly-fitting pair could be obtained for certain only by visiting each of ten geographically dispersed shoe shops. In this instance, thinking of the decisionmaker simply as an optimizer of comfort would lead to puzzlement at his or her selection, but the purchase of poorly fitting shoes looks reasonable enough when the consumer's limited knowledge of the retail environment is considered.

Alternatively, when the precept being violated is to “draw electoral boundaries in such a way as to equalize the populations within the voting districts created,” the planner's action might be to try to ensure merely that no two populations differ by more than one percent. This behavior would be considered boundedly rational if the costs of computing an acceptable boundary configuration were to increase with the level of accuracy required because it would then be appropriate to tolerate small inequalities in district populations to save significant computational costs.

In each of the two previous examples, an action that is undoubtedly suboptimal in a certain narrowly defined choice problem (among pairs of shoes or electoral partitions) can be “rationalized” by considering [Page 51]the totality of the decision-making environment. In the first case, purchasing a pair of shoes that is one-half size too large does not appear inappropriate given the consumer's time constraint and his or her ignorance of exactly where a better-fitting pair can be found. Similarly, creating voting districts with populations that are approximately but not exactly equal seems sensible given that improving the partitioning could be computationally expensive. This general phenomenon—that boundedly rational behavior can be made to look fully rational by broadening the scope of the choice problem to which it is seen as a response—has led some commentators to suggest that models of optimal decision making are adequate for social scientific purposes as long as the environment in which an agent chooses is always described “comprehensively.” But even if this is true in principle (which is by no means obvious), for the claim to have any practical significance, we must be willing both to declare a particular description of the agent's environment to be comprehensive and to commit to a new, more general rationality precept such as, in the electoral partition example, to “minimize one thousand times the maximum absolute difference between district populations in percentage terms minus the cost of computation in dollars.” If the planner fails to consistently obey any rule of this sort, or if repeated broadenings of scope are needed to preserve the appearance of optimal decision making, a good case can be made for restricting attention to the simple problem of creating voting districts (without reference to computational costs) and for imagining the planner to be boundedly rational.

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