A Level Economics AQA Practice Exam

Bounded Rationality refers to:

1. Unlimited access to information during decision-making

2. Constraints that limit rational decision-making

3. The ability to make decisions based on complete information

4. A method of decision-making based solely on intuition

The correct answer is: Constraints that limit rational decision-making

Bounded Rationality refers to the limitations individuals face when making decisions, which can stem from various constraints such as cognitive limitations, lack of information, and time constraints. This concept acknowledges that while individuals strive to make rational choices, their ability to do so is often hampered by these limitations. For instance, when faced with complex decisions, individuals may not have the capacity to process all available information, leading them to rely on heuristics or rules of thumb instead, ultimately resulting in satisfactory rather than optimal decisions. The other options do not accurately represent the concept of Bounded Rationality. Unlimited access to information suggests an ideal scenario that is rarely the case in reality, while the ability to make decisions based on complete information implies a level of rationality that doesn't account for real-world constraints. Finally, a method of decision-making based solely on intuition would indicate a lack of rational consideration altogether, which does not align with the principles of Bounded Rationality.