The previous post in our In Memoriam series highlighted the life and work of Amos Tversky. Though Tversky’s contributions were many, I spoke of him primarily in terms of the rationality debate within the social sciences in general and economics in particular. As a sidebar here, I just want to note that one of the most impressive things about the scholars we are discussing in this series is that they defy the bounds of any one discipline—although most of them are economists by training, nearly all of them made substantial contributions to the social sciences generally. This week’s scholar, Herbert Simon, went even further—he is perhaps cited as often in mathematics and computer science as in political science or economics. A political scientist by formal training, he was awarded the Nobel Prize in Economics in 1978 for his pioneering work on human decision making.
Herbert Simon is best described as a decision theorist, and his work spans every academic discipline with bearing on the subject: epistemology, cognition, social psychology, organization theory, political science, economics, etc. In the interest of brevity, I will keep with a theme I raised in the Tversky post and discuss Simon’s contribution to the rationality debate.
Here’s my top-of-the-head paraphrase of Simon’s contribution to the rationality debate. In his most famous work, Administrative Behavior, Simon begins by noting that “Behavior is purposive in so far as it is guided by general goals or objectives; it is rational in so far as it selects alternatives which are conducive to the achievement of previously selected goals” (1997, 4). But the inputs required are scarce and are often required for the achievement of other goals as well. Thus, there is a close relationship between rationality and efficiency. Efficiency can be described as economizing on scarce resources, or maximizing output per unit of input, or getting the biggest bang for the buck. In either event, efficiency does seem to be implied by rationality. Here’s the kicker! Human cognition is not just how we decide things; it is itself a resource. It is a resource we have in limited supply and for which there are always many competing applications. Thus, rational human beings avoid an exhaustive search for alternatives when a limited search will do. When coordinating our behavior, we form institutional structures, organizations, which not only create divisions of labor and clear lines of authority, but also standard operating procedures which reduce the need to engage in novel negotiation or deliberation where a simple rule of thumb will perform reasonably well.
In other words, human beings exhibit bounded rationality. Think of it as rationality with a budget constraint on deliberation, because deliberation taxes our attention, mental energy, and time. The corollary is this: economizing on deliberation often means that an individual is not conducting an exhaustive search for some optimal or best option among alternative courses of action; rather, we become quite habituated to finding a “good enough” solution and moving on to the next problem. Simon refers to this phenomenon as satisficing—a combination of satisfy and suffice—and this concept involves relaxing the assumption of optimization implicit in standard accounts of rationality. Simon offers his own summation here:
The term bounded rationality in my mind is largely intended as a warning to economists that you cannot predict human behavior by setting up an abstract model of what is rational and inferring behavior from that. You have to know a tremendous amount about what is in that person’s head and the methods that that person uses for calculations…Those are empirical questions that are not to be settled by sitting in an armchair.
Hat’s off to you, Dr. Simon!