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What is bounded rationality decision making?


Bounded rationality is when you take certain variables as fixed, meaning that you don’t question them, but are rational about the remaining variables.

For example, Smith takes it as a given that he is going to earn a living by working as farmer in Oklahoma, but he is rational within the limits set by that decision.

Smith is boundedly rational, i.e. he is rational within the bounds set by a decision that is not itself scrutinized and, even if vindicated, is not itself rational.

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