What does the concept of bounded rationality imply?

The concept of bounded rationality suggests that while individuals aim to make rational choices, their decision-making is confined by limitations such as cognitive capacity, available information, time constraints, and situational factors. This means that people do not possess the ability to process all possible information and thus must work within a framework of what is manageable for them.

This is pivotal in understanding organizational behavior, as it highlights that decisions made in a business context are often based on simplified models of reality rather than complete and exhaustive analysis. Individuals may satisfice rather than optimize, meaning they accept an adequate solution rather than the ideal one due to these constraints. Recognizing these limits can influence how organizations design their processes and environments to support better decision-making despite inherent limitations.