Bounded Rationality
Critique of the Maximizing Behaviour of Consumers and Producers
AO3·HL
Syllabus requirement
Consumers aim to make rational decisions but are limited by cognitive capacity and available information.
Assessment objectives
AO3 Synthesis and Evaluation
Higher LevelThis topic is assessed at HL.
Summary
Bounded rationality describes how real consumers and producers make decisions with limited thinking capacity, imperfect information and limited time, so they cannot always choose the optimal option. The theory, associated with Herbert Simon, explains why people use habits or automatic thinking and why this departure from full rationality can reduce social welfare and challenge standard economic models of maximizing behaviour.