Question

Which statement is an example of bounded rationality?

Tim studies only an hour on the morning of his economics exam because he is satisfied just to make a passing grade.

Ann proofreads her term paper six times.

Mary feels that she has studied enough to make an A+ on her economics exam but studies another 2 hours just to be sure.

Terry does his economics homework twice to be sure that he has a thorough understanding of the topic.

Answer 1

Tim studies only an hour on the morning of his economics exam because he is satisfied just to make a passing grade.

This is the perfect example of bounded rationality here. Bounded rationality refers to the phenomenon where a consumer or a person makes the decision rationally but that decision is bounded by the limitation of time available or knowledge of the person.

Here in this case, Tim is studying only one hour because there is a limitation on his mind set that it’s enough to pass an exam. He could have done better if his mindset had not been bounded.