ABSTRACT
Evidence from psychology and behavioral economics shows that people often fall short of rational standards. Irrationality can be characterized by an analysis that specifies standard examples, such as deductive fallacies, typical features, such as violating inference rules, and explanations, such as why people acquire dumb beliefs. More than 50 error tendencies (fallacies, biases) lead to mental mistakes. Most of these mistakes can be explained by the limitations of the brain with respect to size, speed, cognitive-emotional functioning, and capacity of consciousness. With more neurons and faster processing, people would be able to do a better job of deductive and inductive reasoning. The brain efficiently integrates cognition and emotion, but this integration often leads to confusions of probability and utility, with resulting errors, such as motivated inference and rationalization. Consciousness limits rationality because the brain is only capable of awareness of a small number of items. Brain-derived bounded rationality could be enhanced by informing people about how error tendencies lead to irrationality and how the tendencies arise from brain limitations.
