Bounded Rationality, Motivation & Private Information And Its Implications On Contracts

This conceptualessay is to introduce management scholars to the topics of Bounded Rationality, as propounded by Simon (1957) with the initial emphasis of the topic being given to Motivation, in addition to Coordination the other central problem to any Economic Organization and Management. Often these terms are used in scholarly articles but there are subtle differences between the economic and behavioural literature parlances, definition and understanding. These definitions as described in economics with their understanding are very important to understand contracts, the nature of contracts and underlying assumptions made. Here, influential articles from prominent economics’ articleare gleaned; the terms’ rationale and understanding and important aspects are documented to serve as a primer for scholars.The article further elucidates the importance and flaws of Contracts: which are prima facie agreements made by two or more people which are voluntary in nature and accepted by both the parties entering into a contract when they both see their advantage, which on further decomposing will be seen to be mutually beneficial as well, however, under important caveats. Key Words:Bounded Rationality, Private Information, Motivation, Coordination, Contracts, Obligations, Adverse Selection, Trust, Commitment, Hold-up Policy