Question: In behavioral economics, what does the term bounded rationality refer to?

Thu, 30 Apr 2026 10:24:02 +0000

**Intro: Why Bounded Rationality Matters in Everyday Choices** Have you ever made a decision that didn’t fully reflect your best interests—chose a familiar brand despite better options, spent more time evaluating a minor choice, or trusted your gut more than facts? This pattern isn’t random. In behavioral economics, the term *bounded rationality* describes the cognitive limits that shape how people think, decide, and act—especially when faced with complexity, time pressure, or incomplete information. In the U.S., where decision fatigue and information overload are everyday realities, understanding bounded rationality offers critical insight into human behavior, economic choices, and even digital interactions. Because recognizing these mental boundaries helps explain real-world patterns—and offers tools for making better, more informed decisions. **What Is Bounded Rationality? The Core Concept** Bounded rationality reflects the idea that human thinking has inherent limits. Unlike classical economics that assumes people act as fully rational problem solvers, behavioral economics shows decision-making is constrained by mental shortcuts, time availability, memory limits, and emotional influences. People don’t process every detail; instead, they “satisfice”—settling for a choice that feels good enough, not necessarily optimal. This model better reflects how people navigate real life, particularly in an age of endless options and digital distractions.