To explain:
The concept of bounded rationality and its relevance in economic modeling.
Explanation of Solution
Basically, many of the assumptions are toned down by bounded rationality that goes into homo economicus. The idea that a behavior may breach a rational precept or fail to fit to the norm of optimal rationality, but it is nonetheless compatible with the pursuit of a suitable set of objectives or aims. Of course, this concept is not completely adequate in that it does not specify either the precept being breached or the circumstances under which a set of objectives maybe deemed suitable. But in these ways, the notion of bounded rationality has somewhat always been undefined. In this particular phenomenon that boundlessly rational behavior can be made to look completely reasonable by extending the range of issue of choice to which it is viewed as a response has resulted some commentators to suggest that models of ideal decision making are sufficient for social science reasons as long as the setting in which an agent chooses is always defined as "in full".
This concept is relevant in economic modeling as many economic models suppose that individuals are rational on average and can be approximated to behave as per their preferences in enough amounts. This hypothesis is revised by the notion of bounded rationality to account for the reality that completely rational choices are not often viable in theory due to the illogicality of natural choice issues and the limited amount of assets that are available to make them. The theory of rational choices or models of political agencies presume that human beings can be approximated or described as "rational entities".
Bounded rationality:
The rational choices a person makes within the boundaries of data and that depends on the mental capacity is called bounded rationality. Simply, the concept that is faced by the limitations, the human cognitive decision making can never be completely rational.
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Principles of Economics (Second Edition)
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