Bounded Rationality and Legal Scholarship

28 Pages Posted: 21 Feb 2008

Date Written: February 19, 2008


Decision theory seems to offer a very attractive normative framework for individual and social choice under uncertainty. The decisionmaker should think of her choice situation, at any given moment, in terms of a set of possible outcomes, that is, specifications of the possible consequences of choice, described in light of the decisionmaker's goals; a set of possible actions; and a "state set" consisting of possible prior "states of the world." It is this framework for choice which provides the foundation for expected utility theory, as demonstrated in the work of Leonard Savage.

Problems arise, however, when the decisionmaker is boundedly rational: when the mental process of thinking about outcomes, actions, and states is itself expensive and time consuming. In the case of the unboundedly rational decisionmaker, decision theory enjoins her to employ maximally specific outcomes; to consider all possible actions; and to use a set of mutually exclusive and collective exhaustive states, each of which is sufficiently finely specified so that each action, together with each state, yields one and only one maximally specific outcome. In the case of the boundedly rational decisionmaker, this procedure is either infeasible or, if feasible, irrational.

This paper presents the problem of bounded rationality. It surveys possible solutions, none of which are found to be attractive. And it concludes by discussing the difficulties that the problem of bounded rationality poses for the welfarist program for legal scholarship presented by Louis Kaplow and Steven Shavell in their book, Fairness versus Welfare.

Keywords: decision theory, bounded rationality, social welfare, heuristics and biases, optimal search, expected utility theory, legal scholarship

Suggested Citation

Adler, Matthew D., Bounded Rationality and Legal Scholarship (February 19, 2008). U of Penn, Inst for Law & Econ Research Paper No. 08-03. Available at SSRN: or

Matthew D. Adler (Contact Author)

Duke University School of Law ( email )

210 Science Drive
Box 90362
Durham, NC 27708
United States

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