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Bounded rationality

Reminded by Thinking in Systems by Donella Meadows, this idea is from Herb Simon.

Subjective Expected Utility (SEU) is the God-like “Olympian model”, but is not a suitable model for the mind of man. That said, Rationalists tend to elevate this model:

  1. Well defined utility function.
  2. Well defined set of alternatives to choose from.
  3. Can assign a consistent joint probability distribution to all future sets of events.
  4. Maximize the expected value of the utility function.

Bounded rationality postulates that our minds are limited, bounded by computational powers. This model more closely reflects human ability:

  1. A mechanism to focus attention. "Rationality could focus on dealing with one or a few problems at a time".
  2. A mechanism capable of generating alternatives.
  3. A capability for acquiring facts about the environment, the ability to draw inferences from facts.

Intuitive rationality recognizes that thought is often affected by emotion, which can usefully "distract you from your current focus of thought, and to call your attention to something else that presumably needs attention right now.". There is no contradiction between SEU/Bounded models and intuitive rationality.

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