Bounded rationality and decision making

This paper considers the theory of bounded rationality, also known as behavioral economics developed by D.Kahneman, A.Tversky, R.Thaler and K.Stanovich. This theory demonstrates that human beings often act nonrationally not only due to objective reasons, such as the necessity of decision making under uncertainty and constraints on memory, but also due to inability to make use of their own intellectual tools. This is explained by how fast and slow types of cognitive processes interact. The fast system (System 1) is implemented with minimal control of consciousness and the slow system (System 2) involves consciousness and cognitive efforts. System 1 is working constantly and is making routine decisions while System 2 is involved in non-standard situations. However, System 2 minimizes efforts and does not always fully use its reasoning and estimating abilities due to “cognitive miserliness”. The role of emotions in decision making as a concept introduced by the prominent neurobiologist A. Damasio contributes largely to this theory.