Herbert Simon's concept of Bounded Rationality, as explained in the NISM workbook, describes decision-making under which condition?

[ A ]Investors, constrained by limited time, information, or ability to process complexity, settle for a 'satisficing' (satisfactory and sufficient) solution rather than an optimal one[ CORRECT ]

[ B ]Investors evaluate choices relative to a reference point and are risk-averse about gains but risk-seeking about losses

[ C ]Investors rely heavily on pre-existing information as a reference point for all subsequent judgements

[ D ]Investors make decisions with no regard at all for the information available to them

Takeaway

Option A is correct: this is Bounded Rationality.

Derivation

The NISM workbook, crediting Herbert Simon (1978), defines Bounded Rationality as the cognitive limitation where, in the absence of time or complete information, decision-making favours a 'satisficing' solution instead of an optimal one, explicitly clarifying this 'is not irrational decision making, but rational decision making under certain boundary conditions.' It falls between full Rationality and intuition, and is often confused with Prospect Theory, which separately addresses how people evaluate gains and losses under risk.

Why the others fail

B — Investors evaluate choices relative to a reference point and are risk-averse about gains but risk-seeking about losses

This describes Prospect Theory (Kahneman and Tversky, 1979), a separate concept about decision-making under risk, not Bounded Rationality.

C — Investors rely heavily on pre-existing information as a reference point for all subsequent judgements

This describes Anchoring Bias, a cognitive error, not Bounded Rationality.

D — Investors make decisions with no regard at all for the information available to them

The workbook explicitly states that bounded rationality 'is not irrational decision making, but rational decision making under certain boundary conditions,' so this characterization is wrong.