202402251232 Reality has bounded rationality

The rationality of actors and systems in the real world is bounded. People are not perfectly rational consumers in an economy. Organisms do things that are irrational for seemingly no reason and sometimes to their own detriment (e.g. the lumber industry deforests their environment unsustainably until their company fails).

The economist Herbert Simon coined the phrase "bounded rationality" for this. His definition of bounded rationality is that most often, people act rationally with the information they have on hand. The bounding of that rationality comes from inadequate or misleading information — such that their rational choice is actually an irrational one given the true information — or simply a "good enough" need to only sufficiently satisfy ourselves instead of rationally optimize everything.¹