Bounded Rationality (Gigerenzer, Selten, 2002)

In a complex and uncertain world, humans and animals make decisions under the constraints of limited knowledge, resources, and time. Yet models of rational decision making in economics, cognitive science, biology, and other fields largely ignore these real constraints and instead assume agents with perfect information and unlimited time. About forty years ago, Herbert Simon challenged this view with his notion of "bounded rationality." Today, bounded rationality has become a fashionable term used for disparate views of reasoning.

This book promotes bounded rationality as the key to understanding how real people make decisions. Using the concept of an "adaptive toolbox," a repertoire of fast and frugal rules for decision making under uncertainty, it attempts to impose more order and coherence on the idea of bounded rationality. The contributors view bounded rationality neither as optimization under constraints nor as the study of people's reasoning fallacies. The strategies in the adaptive toolbox dispense with optimization and, for the most part, with calculations of probabilities and utilities. The book extends the concept of bounded rationality from cognitive tools to emotions; it analyzes social norms, imitation, and other cultural tools as rational strategies; and it shows how smart heuristics can exploit the structure of environments.

p.1 Visions of rationality do not respect disciplinary boundaries. Economics, psychology, animal biology, artificial intelligence, anthropology, and philosophy struggle with models of sound judgment, inference, and decision making. These models evolve over time, just as the idea of rationality has a history, a present, and a future.

p.8 models of bounded rationality consist of simple step-by-step rules that function well under the constraints of limited search, knowledge, and time - whether or not an optimal procedure is available. The repertoire of these rules or heuristics, available to a species at a given point in its evolution is called its "adaptive toolbox." The concept of an adaptive toolbox, as we see it, has the following characteristics: First, it refers to a collection of rules or heuristics rather than to a general-purpose decision-making algorithm... Second, these heuristics are fast, frugal, and computationally cheap than consistent, coherent, and general. Third, these heuristics are adapted to particular environments, past or present, physical or social. This "ecological rationality" - the match between the structure of a heuristic and the structure of an environment - allows for the possibility that heuristics can be fast, frugal, and accurate all at the same time by exploiting the structure of information in natural environments

p.41 The heuristics in the adaptive toolbox just "bet" on the environment on the basis of past experience or a little probing, without attempting a complete analysis and subsequent optimization.

p.47 Simple heuristics can be successful for two reasons: they can exploit environmental structure... and they can be robust, that is, generalize well to new environments. If there is uncertainty in an environment, in the sense of some degree of unpredictability and changing environments, robustness becomes an issue.

p.173,187 Herbert Simon provided the metaphor of a pair of scissors for thinking about rational behavior: one blade has to do with the psychology of the organism and the other with the structure of the environment... The general point ... is that the success and failure of heuristics depends on their match with the structure of environments... Note that the term "structure of environment" is shorthand for the information a person, animal, or institution [or machine] knows about a physical or social environment.

p.174 Strategies in the adaptive toolbox are fast and frugal. Fast refers to the relative ease of computation the strategies entail, which has been measured as order of complexity or with elementary information-processing steps. Frugal refers to the very limited amount of information these strategies need.

p.183 The deciding-how-to-decide problem is inherent in the idea that there is an adaptive toolbox for the solving of decision problems; that is, individuals are postulated to have a toolbox of different heuristics, and these different heuristics perform differently across task environments. If no single heuristic works well in every environment, this suggests that an individual must choose the appropriate heuristic for a given situation, i.e., decide how to decide... One view of strategy selection is that a decision maker, when faced with a judgment or choice task, evaluates the available tools in his or her toolbox in terms of relative benefits and costs and selects the one that is best fitted for solving the decision problem.

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