Bounded rationality is the idea that in decision making, rationality of individuals is limited by the information they have, the cognitive limitations of their minds, and the finite amount of time they have to make a decision. It was proposed by Herbert Simon as an alternative basis for the mathematical modeling of decision making, as used in economics and related disciplines; it complements rationality as optimization, which views decision making as a fully rational process of finding an optimal choice given the information available.
Another way to look at bounded rationality is that, because decision-makers lack the ability and resources to arrive at the optimal solution, they instead apply their rationality only after having greatly simplified the choices available. Thus the decision-maker is a satisficer, one seeking a satisfactory solution rather than the optimal one. Simon used the analogy of a pair of scissors, where one blade is the “cognitive limitations” of actual humans and the other the “structures of the environment”; minds with limited cognitive resources can thus be successful by exploiting pre-existing structure and regularity in the environment.
Some models of human behavior in the social sciences assume that humans can be reasonably approximated or described as “rational” entities (see for example rational choice theory). Many economics models assume that people are on average rational, and can in large enough quantities be approximated to act according to their preferences. The concept of bounded rationality revises this assumption to account for the fact that perfectly rational decisions are often not feasible in practice due to the finite computational resources available for making them. (Wikipedia)
The theory in a nutshell: http://www.businessmate.org/Article.php?ArtikelId=227