Abstract
Decision making in economics has been always intertwined with the concept of rationality. However, neoclassical economic literature has been dominated by a specific notion of rationality, namely, perfect rationality, characterized by the assumption of consistency and by the maximization hypothesis. Herbert Simon, in his long research activity, questioned this concept of perfect or global rationality, suggesting a different vision, based on empirical evidence and regarding an individual’s choices. He challenged the neoclassical theory of global rationality, suggesting his notion of bounded rationality, a satisficing (instead of optimizing) behavior, and the relevance of procedural rationality to understand the process of thought of decision makers.Thus, this paper focuses on Simon’s notion of bounded rationality, since bounded rationality remains the hallmark of his theoretical contribution. First, the paper examines the economic decision process in the neoclassical theory and Simon’s notion of bounded rationality. Then, it analyzes in depth Simon’s behavioral model of rational choice, underlining the relevance of satisficing behavior and procedural rationality. Finally, it suggests an assessment of the concept of bounded rationality.
Highlights
The concept of rationality is central to economics
Herbert Simon, in his long research activity, questioned this concept of perfect or global rationality, suggesting a different vision, based on empirical evidence and regarding an individual’s choices. He challenged the neoclassical theory of global rationality, suggesting his notion of bounded rationality, a satisficing behavior, and the relevance of procedural rationality to understand the process of thought of decision makers
This paper focuses on Simon’s notion of bounded rationality, since bounded rationality remains the hallmark of his theoretical contribution
Summary
The concept of rationality is central to economics. This concept passed through various stages, from the strong version of rationality of classical utilitarian economists to the weaker concept of revealed preference theory. Herbert Simon is considered one the fathers of behavioral economics and a pioneer of artificial intelligence (Note 1). In his long research activity in many scientific fields, including economics, he challenged mainstream economics by postulating, as Sent (2005) states, that “human rationality is bounded, due to external and social constraints, and internal and cognitive limitations” (p.227). Simon developed the analysis of decision making related to both individuals and organizations His theoretical contribution to the topic of economic decisions is the result of an interdisciplinary approach where economics, psychology, cognitive science, and organizational theory interact. This paper focuses on Simon’s notion of bounded rationality, defined as the limitations and difficulties of the decision maker to behave in the way the traditional rational choice theory assumes, due to his insufficient cognitive and computational capacities to process all the relevant information.
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