Advances in Economics and Econometrics: Bounded Rationality in Industrial Organization

This paper discusses the use of bounded rationality in industrial organization. There is a long tradition of such work: literatures from various decades have discussed irrationalities by firms and consumers. Three main approaches are found in the recent literature: rule-ofthumb papers specify simple rules for behavior; explicit bounds papers consider agents who maximize payoffs net of cognitive costs; the psychology and economics approach typically cites experimental evidence to motivate utility-like framworks. Common to each recent literature is a focus on consumer irrationalities that firms might exploit. I discuss several new topics that have been opened up by the consideration of bounded rationality and new perspectives that have been provided on traditional topics.