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Bounded rationality |
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This article or section may be written in a style that is too abstract to be readily understandable by general audiences. Please improve it by defining jargon or buzzwords, and by adding examples. (August 2008) |
Some models of human behavior in the social sciences assume that humans can be reasonably approximated or described as "rational" entities (see for example rational choice theory). Many economics models assume that people are on average rational, and can in large enough quantities be approximated to act according to their preferences. The concept of bounded rationality revises this assumption to account for the fact that perfectly rational decisions are often not feasible in practice due to the finite computational resources available for making them.
The term is thought to have been coined by Herbert Simon. In Models of My Life, Herbert Simon points out that most people are only partly rational, and are in fact emotional/irrational in the remaining part of their actions. In another work, he states "boundedly rational agents experience limits in formulating and solving complex problems and in processing (receiving, storing, retrieving, transmitting) information" (Williamson, p. 553, citing Simon). Simon describes a number of dimensions along which "classical" models of rationality can be made somewhat more realistic, while sticking within the vein of fairly rigorous formalization. These include:
Simon suggests that economic agents employ the use of heuristics to make decisions rather than a strict rigid rule of optimization. They do this because of the complexity of the situation, and their inability to process and compute the expected utility of every alternative action. Deliberation costs might be high and there are often other economic activities where similar decision making is required.
Daniel Kahneman proposes bounded rationality as a model to overcome some of the limitations of the rational-agent models in economic literature.
As decision makers have to make decisions about how and when to decide, Ariel Rubinstein proposed to model bounded rationality by explicitly specifying decision making procedures. This puts the study of decision procedures on the research agenda.
Gerd Gigerenzer argues that most decision theorists who have discussed bounded rationality have not really followed Simon's ideas about it. Rather, they have either considered how people's decisions might be made sub-optimal by the limitations of human rationality, or have constructed elaborate optimising models of how people might cope with their inability to optimize. Gigerenzer instead proposes to examine simple alternatives to a full rationality analysis as a mechanism for decision making, and he and his colleagues have shown that such simple heuristics frequently lead to better decisions than the theoretically optimal procedure.
From a computational point of view, decision procedures can be encoded in algorithms and heuristics. Edward Tsang argues that the effective rationality of an agent is determined by its computational intelligence. Everything else being equal, an agent that has better algorithms and heuristics could make "more rational" (more optimal) decisions than one that has poorer heuristics and algorithms.
A school of economic thought that traditionally assumes that economic agents have bounded rationality is the Austrian school.
Mumby & Putnam (1992) provide a poststructuralist feminist critique of bounded rationality, arguing that rationality in organizations is a myth that privileges masculine ways of being. Instead of characterizing organizations by bounded rationality, Mumby & Putnam suggest bounded emotionality as an alternative. "The concept of bounded emotionality refers to an alternative mode of organizing in which nurturance, caring, community, supportiveness, and interrelatedness are fused with individual responsibility to shape organizational experiences" (Mumby & Putnam, 1992, p. 474). Bounded emotionality establishes the undeniable presence of emotions in organizations, asserting that emotions have an important and valuable role in traditional organizational functioning as they create interrelatedness among organizational members. Bounded emotionality states that emotional expression in the context of organizations should be encouraged to emerge spontaneously, while at the same time individuals must act with interpersonal sensitivity. Bounded emotionality disrupts the mind-body dualism that often dominates organizational theorizing and instead offers emotion as a complement to traditional rational decision making. The article draws heavily on Hochschild’s notion of emotional labor to demonstrate how traditional organizational structures only value emotional expression when it is instrumental to organizational objectives.
Martin, Knopoff & Beckman (1998) conduct an analysis of one organization, The Body Shop, to examine bounded emotionality in practice. The Body Shop, a cosmetics corporation managed by an unusually high number of women is characterized by an openness to emotional expression. The results of this study Martin, Knopoff & Beckman question Mumby & Putnam's assumption of an authentic self and problematize the notion of diversity in levels of comfort with emotional expression.
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