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Models of Bounded Rationality: The Approach of Fast and Frugal Heuristics

Author

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  • Ulrich Hoffrage

    () (Max Planck Institute for Human Development, Berlin)

  • Torsten Reimer

    (University of Basel, Basel)

Abstract

In a complex and uncertain world, humans draw inferences and make decisions under the constraints of limited knowledge, resources, and time. Herbert Simon, with his call for models of bounded rationality, can be seen as one of the fathers of the recently initiated research program on "simple heuristics that make us smart" (Gigerenzer/Todd/the ABC Research Group, 1999). These heuristics perform well because they are ecologically rational: they explore the structure of environmental information and are adapted to this structure. The present review paper introduces the key concepts of this research tradition, and provides two examples: (1) The recognition heuristic, which exploits a partial lack of knowledge, and (2) Take The Best, a simple lexicographic strategy that deliberately ignores information although it is available. The paper explains their ecological rationality, provides empirical evidence of their use, and illustrates some of their applications in consumer behaviour and group decision making. Finally, this research program is related to various notions of rationality.

Suggested Citation

  • Ulrich Hoffrage & Torsten Reimer, 2004. "Models of Bounded Rationality: The Approach of Fast and Frugal Heuristics," management revue. Socio-economic Studies, Rainer Hampp Verlag, vol. 15(4), pages 437-459.
  • Handle: RePEc:rai:mamere:1861-9908_mrev_2004_04_hoffrage
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    Cited by:

    1. Salle, Isabelle & Seppecher, Pascal, 2016. "Social Learning About Consumption," Macroeconomic Dynamics, Cambridge University Press, vol. 20(07), pages 1795-1825, October.
    2. Basel, Jörn S. & Brühl, Rolf, 2013. "Rationality and dual process models of reasoning in managerial cognition and decision making," European Management Journal, Elsevier, vol. 31(6), pages 745-754.
    3. Reimann, Olivier & Schumacher, Christian & Vetschera, Rudolf, 2017. "How well does the OWA operator represent real preferences?," European Journal of Operational Research, Elsevier, vol. 258(3), pages 993-1003.

    More about this item

    Keywords

    Bounded Rationality; Ecological Rationality; Simple Heuristics Recognition Heuristic; Take The Best;

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • J53 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Labor-Management Relations; Industrial Jurisprudence
    • M10 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - General

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