An information theoretic model of bounded rationality (Q1075977)

In this paper, Shannon's information theory model is used to describe productive entities - entities that receive orders for products (from environment) and send out finished products - as communication systems that receive and send messages. In this context, the bounded rationality of a productive entity is related to the limited capacity of a communication channel, and, for an entity with bounded rationality, choosing between two forms of adaptation to its environment - adaptedness (ready responses) and adaptability (learned or synthetic responses) - is shown to be identical to the problem of coding. The behavioral interpretation of information theory, developed in this paper, may be of interest for an economic analysis.