4.2 Bounded rationality and the use of heuristics

As decision makers, none of us has infinite resources or time to devote to gathering and analysing information. In addition, we all have significant limitations to the amount of complexity we can cope with. Thus, even where we make conscious efforts to make decisions according to a formally rational process, we often need to make simplifying assumptions and accept limits on the availability of information and the thoroughness of our analysis.

As noted above, we constantly use heuristics as a way of reducing the complexity of decision making: for example, associating a particular brand with quality rather than engaging in a detailed evaluation of the merits of different breakfast cereals or clothing stores. Many of these are entirely unconscious. They are often useful, but also lead to some significant biases in our decision making. You encountered some of these in Activity 1 (in Section 1). We are going to look at some of the most important in more detail below:

• framing the problem

• using information

• problems of judgement

• post-decision evaluation.