Models of Bounded Rationality: The Approach of Fast and Frugal Heuristics

In a complex and uncertain world, humans draw inferences and make decisions under the constraints of limited knowledge, resources, and time. Herbert Simon, with his call for models of bounded rationality, can be seen as one of the fathers of the recently initiated research program on "simple heuristics that make us smart" (Gigerenzer/Todd/the ABC Research Group, 1999). These heuristics perform well because they are ecologically rational: they explore the structure of environmental information and are adapted to this structure. The present review paper introduces the key concepts of this research tradition, and provides two examples: (1) The recognition heuristic, which exploits a partial lack of knowledge, and (2) Take The Best, a simple lexicographic strategy that deliberately ignores information although it is available. The paper explains their ecological rationality, provides empirical evidence of their use, and illustrates some of their applications in consumer behaviour and group decision making. Finally, this research program is related to various notions of rationality.