A MODEL OF DECISION-MAKING UNDER BOUNDED RATIONALITY

A model of decision making under bounded rationality is presented that combines satisficing behavior with learning and adaptation through environmental feedback. The aspirations, or goals, of the decision maker dynamically adjust in response to the observed sequence of past decisions and their corresponding effects on the decison maker's objective function. A simple linear response model is employed to represent the beliefs of the decison maker concerning the causal connection between his/her decisions and the resulting objective function value. The combination of these simple elements yields a decision process model rich in dynamic behavior; it can exhibit optimizing behavior in the long-run and chaotic pseudo-random search in the short-run. As such, the model bridges the gap between substantive rationality and procedural rationality.