Bounded Rationality — Why Failure Is Systemic, Not Accidental

Abstract

Classical models of decision-making assume rational agents who possess stable preferences, complete information, and the capacity to optimize outcomes. Real-world behavior departs sharply from these assumptions. This article examines the concept of bounded rationality and its implications for individual judgment, organizational behavior, and systemic failure. Drawing on economics, psychology, and institutional analysis, the
paper argues that many large-scale failures are not anomalies or moral lapses, but predictable consequences of cognitive limits interacting with complex environments. Rather than viewing error as accidental, bounded rationality reframes failure as structural. Understanding these limits, and designing systems that account for them, is presented as a central task of practical intelligence and a prerequisite for durable decision-making under
uncertainty.