Bounded Rationality

Definition ∞ Bounded rationality describes the concept that human decision-making is limited by available information, cognitive capabilities, and time constraints. Individuals in economic systems, including digital asset markets, make choices that are satisfactory rather than perfectly optimal due to these inherent restrictions. This framework acknowledges that complete information processing and absolute optimization are often unattainable in practical scenarios. It helps explain deviations from purely rational economic models.
Context ∞ Discussions around bounded rationality in digital economics frequently relate to investor behavior in volatile cryptocurrency markets, where rapid price movements and complex technical data overwhelm individual processing capacity. Understanding these cognitive limits is crucial for designing user interfaces for trading platforms and for developing regulatory frameworks that account for realistic human decision patterns. Future research may explore how AI tools can augment human decision-making to mitigate the effects of these cognitive restrictions.