Rationality - bounded ratioality

4 important questions on Rationality - bounded ratioality

Actual behavior of human agents can divert from rational behavior for 4 reaons:

- no consistent preferences over time
- the valuations of people are incommensurable
- hierachy in values
- no rational belief

Law of small numbers

people tend to exaggerate how closely a small sample will resemble the total population from which the sample is drawn

Hypothesis-based filtering of information

on the basis of our hypothetical beliefs, we filter new information and ignore relevant information that contradicts our beliefs
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Defenses of unbound rationality

- as if rationality --> people act approximately as if they were unboundedly rational
-learning --> act as if unboundedly rational
- self-selection --> agents wo do not optimize, will not survive

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