Theodore Roosevelt once said, “In any moment of decision, the best thing you can do is the right thing, the next best thing is the wrong thing, and the worst thing you can do is nothing.” The real question becomes, “How do we know we are making the right decision?” In today’s society, individuals are faced with a difficult task on a daily basis, which is making decisions. Decisions can come in all shapes and sizes. The decisions that a person makes can have a lasting effect on his or her life. This is where the person must proceed with caution and consider all of their options. When we, as individuals, make decisions we must be rational. Rational individuals methodically and carefully do their absolute best so that their goals are achieved (Mankiw, 2012). When individuals make decisions about investing their money or buying products, they become more cautious about what they are investing in or buying. No matter how intelligent the individual is, they are limited in their choices. There is only so much knowledge that the human brain can hold, only a limited amount of time to access the information, and a limited amount of time for the individual to decide whether he or she wants to carry out with the task. This concept is known as bounded rationality (Pettinger, 2012). As stated in the abstract of the paper, Herbert Simon is responsible for the theory of bounded rationality (“Herbert Simon,” 2009).
Bibliography of Herbert Simon
Born on June 15, 1916, in Milwaukee, Wisconsin, Herbert Alexander Simon was a social scientist. He offered his input in many other fields including the following: mathematics, statistics, economics, and psychology. Herbert Simon attended and graduated from the University of Chicago in ...
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...s fault when they fail their exam, instead of blaming themselves for not studying adequately. The diminishing sensitivity bias states that the marginal effects has less of an effect when it is farther away from the reference point (Foss, 2001). The endowment effect happens when an individual overvalues his or her possessions, regardless of what the market price values it at (Kahneman, Knetsch, & Thaler, 1991).
In conclusion, Herbert Simon was correct about the theory of bounded rationality. No matter how intelligent an individual is, when he or she makes decisions, their rationality is limited. The human brain can do magnificent things, but it can only process so much information. There are only so many hours within a day; therefore, this restricts humans as to much time they have when gather the information; this is the concept of bounded rationality.
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