What does bounded rationality refer to in decision making?

Bounded rationality refers to the limitations that individuals face when making decisions due to a variety of constraints, such as cognitive limitations, information availability, time constraints, and the complexities of the environment. This concept acknowledges that while individuals strive to make rational decisions, their ability to do so is restricted by these factors, leading them to make satisfactory rather than optimal choices.

In essence, bounded rationality highlights the idea that decision-makers often must operate within a framework of limited information and cognitive capacities, which influences their ability to analyze all possible alternatives and outcomes thoroughly. This perspective challenges the notion of perfect rationality, emphasizing the real-world limitations that affect decision-making processes.