Valuation models and Simons bounded rationality

Alexandra Strommer de Faria Godoi ()

Brazilian Journal of Political Economy, 2009, vol. 29, issue 3, 54-70

Abstract: This paper aims at reconciling the evidence that sophisticated valuation models are increasingly used by companies in their investment appraisal with the literature of bounded rationality, according to which objective optimization is impracticable in the real world because it would demand an immense level of sophistication of the analytical and computational processes of human beings. We show how normative valuation models should rather be viewed as forms of reality representation, frameworks according to which the real world is perceived, fragmented for a better understanding, and recomposed, providing an orderly method for undertaking a task as complex as the investment decision. JEL Classification: D83; M21; Y4.

Keywords: Bounded rationality; investment; decision-making; case-studies (search for similar items in EconPapers)
Date: 2009
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