"If (...) we accept the proposition that both the knowledge and the computational power of the decision maker are severely limited, then we must distinguish between the real world and the actor’s perception of it and reasoning about it."
Bounded rationality is the idea that rationality is limited when individuals make decisions, and under these limitations, rational individuals will select a decision that is satisfactory rather than optimal.
"Bounded rationality means that people make quite reasonable decisions based on the information they have. But they dont have perfect information, especially about more distant parts of the system. [...] We dont even interpret perfectly the imperfect information that we do have, say behavioral scientists. [...] Which is to say, we dont even make decisions that optimize our own individual good, much less the good of the system as a whole."
"The principle of bounded rationality [is] the capacity of the human mind for formulating and solving complex problems is very small compared with the size of the problems whose solution is required for objectively rational behavior in the real world — or even for a reasonable approximation to such objective rationality."
"Broadly stated, the task is to replace the global rationality of economic man with a kind of rational behavior that is compatible with the access to information and the computational capacities that are actually possessed by organisms, including man, in the kinds of environments in which such organisms exist."
"The first consequence of the principle of bounded rationality is that the intended rationality of an actor requires him to construct a simplified model of the real situation in order to deal with it. He behaves rationally with respect to this model, and such behavior is not even approximately optimal with respect to the real world. To predict his behavior we must understand the way in which this simplified model is constructed, and its construction will certainly be related to his psychological properties as a perceiving, thinking, and learning animal."
"In Administrative Behavior, bounded rationality is largely characterized as a residual category — rationality is bounded when it falls short of omniscience. And the failures of omniscience are largely failures of knowing all the alternatives, uncertainty about relevant exogenous events, and inability to calculate consequences. There was needed a more positive and formal characterization of the mechanisms of choice under conditions of bounded rationality... Two concepts are central to the characterization: search and satisficing."
"All that most economists know about Herbert Simon is that he wrote about bounded rationality and organizational behavior."