Bounded rationality
October 27th, 2006I’m discovering I’m a bad mathematician. That’s a lie. I knew I was a bad mathematician. Nonetheless, I love theory. This is a problem.
Choices that decision makers make are boundedly rational if a) he would make the same choices when he has fewer options to choose from than when he has more options and b) he doesn’t choose something between two options that he wouldn’t have chosen when those two options are available plus more. The first one says that if the decision maker chooses chocolate when he gets to choose between broccoli, chocolate and yogurt then he’ll choose chocolate when he only has chocolate and yogurt to choose from. The second one says that he won’t choose broccoli over chocolate and he won’t choose broccoli over yogurt if he doesn’t choose broccoli over all three.
He’s bounded rational because his choices may not be transitive. He may like chocolate over yogurt and yogurt over broccoli, but he’s never compared chocolate to broccoli so its not given that he prefers the former to the later.