Computational Costs and Bounded Rationality

In conventional economic theory of choice it is assumed that (optimal) decision making by economic agents is costless. However, any form of problem solving in economic theory involves making use of an effective algorithm, a procedure that requires the use of scarce resources. Thus an optimal decision can only be determined after the cost of reaching the decision has been taken into consideration. A program for bounded rationality is linked to the cost of computation for decision making. In order to distinguish between cost of various decision procedures, a meta-decision problem is established in which it is assumed that a decision about decision methods is costless for an agent.