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From "Thin" to "Thick" bounded Rationality in the Economics of Prganization: An Explorative Discussion

  • Nicolai Foss

Bounded rationality has often been invoked in the theory of economic organization, mainly to rationalize contractual incompleteness. I argue that one may distinguish between thin and thick notions of bounded rationality; that models that rely on thin notions are often effectively indistinguishable from models that rely on full rationality; and that the value-added in terms of economic content by including thin bounded rationality is usually quite small. Some recent exchanges on the foundations of incomplete contracts are discussed in order to illuminate these points. I then suggest that thicker notions of bounded rationality, centering on biases and errors in human decision making and how these interact with preferences, may help to make the theory of economic organization behaviorally richer, and that this has substantive implications with respect to a fuller understanding of the nature of organizations.

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Paper provided by Department of Industrial Economics and Strategy, Copenhagen Business School in its series IVS/CBS Working Papers with number 2001-3.

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Handle: RePEc:ivs:iivswp:01-03
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