Bounded rationality, introduced by Herbert Simon (1955), challenges the economic assumption of perfect rationality by recognizing that real decision makers have limited cognitive resources: finite attention, limited working memory, incomplete knowledge of alternatives and consequences, and limited time. Rather than optimizing (finding the best possible option), bounded rational agents satisfice — searching until they find an option that meets an acceptable threshold of quality, then stopping.
Satisficing
Simon contrasted the "economic man" (who maximizes utility across all possible options) with the "administrative man" (who satisfices given cognitive and environmental constraints). When buying a house, you do not evaluate every available property and select the one with maximum utility. You search sequentially, evaluate each against your criteria, and buy the first one that meets your threshold. This is not irrational — it is an adaptive response to the impossibility of complete information and unlimited computation.
Ecological Rationality
Gerd Gigerenzer and colleagues extended bounded rationality into the program of ecological rationality, arguing that simple heuristics can be not just satisfactory but optimal when matched to the structure of the environment. The "take-the-best" heuristic (decide based on the single most valid cue that discriminates between options) can outperform complex optimization strategies in noisy, uncertain environments. This perspective reframes heuristics from cognitive limitations to adaptive tools that exploit environmental regularities.
Simon's bounded rationality concept transformed multiple fields. In economics, it challenged perfect rationality assumptions and contributed to behavioral economics. In organizational theory, it explained how organizations simplify decisions through rules, hierarchies, and routines. In AI, it motivated research on satisficing algorithms and resource-bounded reasoning. Simon received the Nobel Prize in Economics (1978) and the Turing Award for his contributions to AI.