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Quantifying Bounded Rationality: Formal Verification of Simon's Satisficing Through Flexible Stochastic Dominance

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  • Jingyuan Li
  • Zhou Lin

Abstract

This paper introduces Flexible First-Order Stochastic Dominance (FFSD), a mathematically rigorous framework that formalizes Herbert Simon's concept of bounded rationality using the Lean 4 theorem prover. We develop machine-verified proofs demonstrating that FFSD bridges classical expected utility theory with Simon's satisficing behavior through parameterized tolerance thresholds. Our approach yields several key results: (1) a critical threshold $\varepsilon

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  • Jingyuan Li & Zhou Lin, 2025. "Quantifying Bounded Rationality: Formal Verification of Simon's Satisficing Through Flexible Stochastic Dominance," Papers 2507.07052, arXiv.org.
    • Handle: RePEc:arx:papers:2507.07052
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    1. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    2. Colin Camerer & George Loewenstein & Drazen Prelec, 2005. "Neuroeconomics: How Neuroscience Can Inform Economics," Journal of Economic Literature, American Economic Association, vol. 43(1), pages 9-64, March.
    3. Ilia Tsetlin & Robert L. Winkler & Rachel J. Huang & Larry Y. Tzeng, 2015. "Generalized Almost Stochastic Dominance," Operations Research, INFORMS, vol. 63(2), pages 363-377, April.
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