Bounded rationality and bounded self-control

• bounded rationality, which means that individuals, however high or low their intelligence, make decisions subject to three unavoidable constraints:

  • limited mental processing ability
  • time constraint
  • imperfect information
• What constraints cause bounded rationality?

  • Limited mental processing ability
  • imperfect information
  • time constraint
• Traditional or orthodox economic theory implicitly assumes that when making choices, individuals have complete self control. Behavioural economists, by contrast, believe that individuals have bounded self control
• What do traditional economists assume about self control?

  Individuals have complete self control
• What do behavioural economists assume about self control?

  Individuals have bounded self control
• An example of bounded self control is that consumers are addicted to cigarettes that they know does harm but cannot stop themselves from consuming it
• What is an example of a bounded self control good?

  cigarettes