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Valuation models and Simons bounded rationality

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  • Alexandra Strommer de Faria Godoi

Abstract

This paper aims at reconciling the evidence that sophisticated valuation models are increasingly used by companies in their investment appraisal with the literature of bounded rationality, according to which objective optimization is impracticable in the real world because it would demand an immense level of sophistication of the analytical and computational processes of human beings. We show how normative valuation models should rather be viewed as forms of reality representation, frameworks according to which the real world is perceived, fragmented for a better understanding, and recomposed, providing an orderly method for undertaking a task as complex as the investment decision. JEL Classification: D83; M21; Y4.

Suggested Citation

  • Alexandra Strommer de Faria Godoi, 2009. "Valuation models and Simons bounded rationality," Brazilian Journal of Political Economy, Center of Political Economy, vol. 29(3), pages 54-70.
    • Handle: RePEc:ekm:repojs:v:29:y:2009:i:3:p:54-70:id:486
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    More about this item

    Keywords

    Bounded rationality; investment; decision-making; case-studies;
    All these keywords.

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics
    • Y4 - Miscellaneous Categories - - Dissertations

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