Resource Bounded Reasoning
Perhaps more than anybody else in economic theory, Herbert A. Simon stressed that individual decision makers have no choice but to make decisions under the constraints of limited cognitive resources [1]. On the basis of this indisputable truth about the human cognitive system, he challenged classical economic theory, which in his view projected an omniscient rationality assuming unbounded knowledge, computational capacities, and time. Simon argued that psychologically plausible theories of decision making, which assume realistic limits on the knowledge and computational abilities of the human agent, also lead to conclusions at the level of aggregate phenomena. Importantly, these conclusions are not always the same as those suggested by neoclassical theory, thus rendering possible crucial tests. Simons vision of a different rationality of economic behavior, bounded rationality, has not only posed a challenge to economic theory but has also suggested a new research agenda revolving around the following key question: how rational are people, given their limited computational capabilities and their incomplete knowledge?
In psychology, two research programs have worked toward answering this question. One program is the heuristics and biases program instigated in the early 1970's by Daniel Kahneman and Amos Tversky; the other is the program on fast and frugal heuristics initiated by Gerd Gigerenzer and colleagues (e.g., [2, 3]). The goal of this chapter is to introduce the view of bounded rationality as exposed by the fast and frugal heuristics program.
Bounded Rationality as Ecological Rationality
Heuristic reasoning with bounded resources
Streaming Reasoning and Real Time Reasoning
[1] H.A. Simon. Rational choice and the Psychological Review, 63:129C138, 1956.
[2] G. Gigerenzer and D. G. Goldstein. Reasoning the fast and frugal way: Models of bounded rationality. Psychological Review, 103(4):650–669, 1996.
[3] J. Czerlinski, G. Gigerenzer, and D.G. Goldstein. How good are simple heuristics? In P. M. T. G. Gigerenzer, editor, Simple heuristics that make us smart, pages 97–118. New York: Oxford University Press, 1999.