The integration of digital technologies in the management realm is literally revolutionizing the landscape of firm decision-making, thereby prompting for a reassessment of traditional approaches in the face of increasing intricacies and complexities. Herbert Simon’s idea of bounded rationality, undoubtedly a foundational notion in understanding human decision-making, has heretofore played a pivotal role in this context by proving more reliable than the previous understanding of full or Olympic human rationality. However, the inception of the digital age, marked by exponential technological advancements, the availability of big amounts of data, and the increasing influence of artificial intelligence (AI), has unexpectedly unveiled the inherent limitations of bounded rationality. To overcome these precincts, this paper explores the contours of the challenges that the digital age poses to bounded rationality and proposes the implementation of a third kind of rationality driven by human-AI interaction that we term ‘hybrid unfolding rationality.’ By contributing to a more nuanced understanding of human-AI decision-making, we emphasize the need for a type of rationality exposing the cognitive dynamics that support human-AI collaboration in building, refining, and revising procedures and rules of interaction in an iterative and recursive fashion within the firm context. The study highlights the key conceptual and managerial implications of hybrid unfolding rationality and suggests some fruitful avenues for future research.
