Thursday, March 27, 2008

The Theory of Bounded Rationality

I was just having a discussion about the complexities of managing an AdWords campaign and the sheer volume of data that is available to marketers today. It reminded me of an article that I read long ago about the concept of Bounded Rationality.

Definition: In a complex and uncertain world, humans and animals make decisions under the constraints of limited knowledge, resources, and time.

What does that mean? The process of becoming making sense of all of the data is a bit like peeling the layers of an onion. One layer is removed to reveal another opaque layer, a veil that has to be lifted to identify additional inputs that can help optimize ones decision. The only thing is that when you get to the centre of an onion you find that the layers are the onion and that there is no optimal solution.

I want to learn more, so I bought the book below.

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