Bounded Rationality
Bounded rationality is a concept in behavioral finance that suggests people make decisions based on limited information and cognitive resources rather than complete rationality. It acknowledges that our ability to process information is constrained by factors like time, emotions, and cognitive biases. As a result, individuals often rely on heuristics, or mental shortcuts, which can lead to suboptimal financial choices. Instead of thoroughly analyzing every option, people make satisfactory decisions that are "good enough" for their needs, even if they might overlook better alternatives or make errors in judgment.
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Bounded rationality is a concept that describes the limitations of decision-making. It recognizes that while people strive to make logical choices, their ability to process information is constrained by factors like time, resources, and cognitive capacity. Instead of making perfectly optimal decisions, individuals often settle for "good enough" solutions based on the information available to them. This approach acknowledges that our rationality is bound by these limitations, leading to decisions that may be satisfactory but not necessarily the best possible. It highlights the complexity of human behavior in uncertain environments.
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Bounded rationality is a concept in decision-making that recognizes the limitations of human thinking. People often have to make choices based on incomplete information, limited time, and cognitive constraints. Instead of being fully rational and considering every possible option, individuals usually settle for a satisfactory solution that meets their needs. This means that while they aim to make good decisions, their choices may not always be optimal due to these inherent limitations. Essentially, bounded rationality illustrates that our reasoning is often "bounded" by various factors in real-life situations.