PUBLIC POLICY

Implications of bounded rationality on the structure and content of public policy

Implications of bounded rationality on the structure and content of public policy

Introduction

Behavioural economics combines economic thought with cognitive psychology to explain human behaviour, especially in the realm of business and finance. This branch of economics has its roots in the 1940s when economist Herbert Simon offered the idea of bounded rationality, contending that reason alone was not sufficient to explain human decisions and actions. These combinations of economics and human psychology have multiple career applications in business and education. Bounded rationality suggests that decision making is less complex than the usual assumption of hyper-rationality. H. Simon emphasizes the existence of a so-called procedural rationality that allows players to find solutions, not by recourse to substantive capacity to reason, but by adopting a common ground and built collectively constituting calculation procedures. The individual is not rational. The individual rationalizes its practices. It called procedural rationality because it is underpinned, not by applying rules of logic choices that ignore time, but by learning and knowledge acquisition. Therefore, people write their contracts knowing that they cannot cover all eventualities. They structure their best writing in general clauses to minimize the costs involved a detailed description.

Contemplating the logic of learning in that broad sense and the concept of bounded rationality that emerges as a massed comprehensive biological reactions of the amoeba in their adaptive behaviours, man can more carefully premeditate to plot the change in its environment and indirectly achieve their more remote purposes. It is shocking to formulate a common factor for extracting good degree of abstraction to illuminate these two phenomena as they apparently feature disparate.

Principle of Bounded Rationality:

Herbert A. Simon gave the principle of bounded rationality that the ultimate basis for the emergence of organizations lies in the existence of limits within practical-human rationality. The human reasoning of economic theory and the statistics theory of the decision to make optimal choices. In a much specified and clearly defined manner depicts that an individual can only serve a limited number of things at a time, and the objective reality is too complex to be managed to take into account all details. Rational behaviour (individual or organization) involves replacing the complex reality of a model of reality to quite simple one, to be treated as the process that specializes in theory of knowledge called 'trouble shooter'. If human rationality had no limits, then the redundant the theory of the organization will be enough to choose from among the half available that will lead to the realization of desired definite objective (Bendor, 2010, Pp. 125-140).

First, it must be admitted according to Simon, an individual does not have unlimited access to information, especially as staying informed requires both resources not just in terms of money and time, but also in social capital. Then, an individual who has cognitive abilities would not allow machines like computers to obtain a synoptic view of all the situations in which, information located with an analysis ...