Bounded Rationality

http://www.mpib-berlin.mpg.de/en/forschung/abc/summerinstitute/abstracts.htm#Gigerenzer1

Gerd Gigerenzer

What is Bounded Rationality?

The question of bounded rationality is: How do real people make decisions when time is limited, information costly, and the future uncertain? For many economists, the answer is that people behave as if they optimized under constraints, such as information costs. For many psychologists, in contrast, the answer is that people commit reasoning fallacies due to limited cognitive capacities. These two visions of the nature of bounded rationality make an odd couple, one promoting rationality, the other irrationality. In this lecture, I discuss an alternative view based on Herbert Simon's vision of bounded rationality: the study of fast and frugal heuristics. The heuristics in the "adaptive toolbox" are anchored in the mind and the environment. They are embodied in the sense that they can exploit capacities of the human mind (such as recognition memory), which allows judgments to be quick. They are anchored in the environment in the sense that they can exploit statistical or social structures (such as signal-noise ratio or trust), which allows people to ignore information - less is more. The rationality of heuristics is ecological, not logical.

http://en.wikipedia.org/wiki/Bounded_rationality