Inductive Reasoning and Bounded Rationality

TLDR: The type of rationality we assume in economics, perfect, logical, deductive rationality, is extremely useful in generating solutions to theoretical problems as mentioned in this paper. But it demands much of human behavior, much more in fact than it can usually deliver.

Abstract: The type of rationality we assume in economics--perfect, logical, deductive rationality--is extremely useful in generating solutions to theoretical problems. But it demands much of human behavior--much more in fact than it can usually deliver. If we were to imagine the vast collection of decision problems economic agents might conceivably deal with as a sea or an ocean, with the easier problems on top and more complicated ones at increasing depth, then deductive rationality would describe human behavior accurately only within a few feet of the surface. For example, the game Tic-Tac-Toe is simple, and we can readily find a perfectly rational, minimax solution to it. But we do not find rational "solutions" at the depth of Checkers; and certainly not at the still modest depths of Chess and Go.