Boundedness of our Decision Making
Lately, I have been reading some papers and books on Behavioral Economics. I must say that I am quite fascinated with the concept of “bounds of Decision Making”:
- Bounded Rationality: Individual judgements are limited in their rationality due to various reasons (lack of complete information, time and cost issues, self-serving bias, intelligence limits, perceptions, limited recall abilities, etc.)
- Bounded Awareness
- Bounded Ethicality: Our ability to be ethical is limited (System 1 effect).
In addition, there are inter-temporal inconsistencies (hyperbolic discounting: excessive importance to the present at the expense of sacrificing the future or long term interests!), bounds on self-interest (fairness bias).
The book by Max. H. Bazerman develops these concepts and is a great read (although it is a “text” book).
Tags: Behavioral