Herbert Simon’s theory of bounded rationality

Do we rely on reason in our day-to-day lives, or are we rather emotional beings?

Human cognition is limited and imperfect: even if we were able to obtain all the available information about a problem we have to solve, our failures of reasoning would prevent us from making the optimal decision.

This is the main proposition of the theory of bounded rationality proposed by Herbert Simon.. His model has had important applications in economics and organizational psychology, and to a large extent is still relevant today.

• Related article, "Are we rational or emotional beings?"

Herbert A. Simon, the author

Herbert Alexander Simon was born in Pennsylvania in 1916. He pursued his studies in social science and mathematics at the University of Chicago; in 1943 he received his doctorate in political science.

Subsequently Simon was a professor of psychology, political science and computer science at UC Berkeley and Carnegie Mellon at UC Berkeley and Carnegie Mellon, where he worked until his death in 2001.

He titled his first book "Administrative Behavior", which appeared in 1947 and would become his most famous work. It was in this work that he first put forward the theory of bounded rationality.

His model of human behavior had a fundamental influence on the social sciences in general in general and economics in particular. Simon's ideas have been applied with particular frequency in the field of organizations.

The bounded rationality model

Herbert Simon's bounded rationality theory posits that people make decisions in a partially irrational way. make decisions in a partially irrational way because of our cognitive, information and time constraints.

This model emerged as a reaction to the theories of rationality, very popular in political science and economics, which propose that humans are rational beings who decide on the optimal solution to each problem using all available information.

However, according to Simon and his successors, it is very difficult to make fully rational decisions because our resources for processing information are limited, especially when problems are complex, as is often the case in everyday life. As opposed to the classical idea of the "economic man", Simon promoted the idea of the "economic man".Simon promoted that of the 'administrative man', unable to grasp the complexity of the world and the interrelationship between its elements.

The bounded rationality model asserts that people use heuristics when finding solutions. Heuristics are defined as simple rules of thumb. that we use to solve problems; although they can be useful in many cases, in others they produce cognitive biases, i.e., systematic deviations in reasoning.

The availability heuristic, for example, refers to the fact that people tend to take into account more recent and frequent information because we can access it more easily. Thus, if we have recently had a traffic accident, we are more likely to overestimate the probability of having another one.

The decision-making process

According to Simon, rational decision-making consists of solving problems by choosing the most appropriate alternative among those available. The decision will be more correct the more likely it is to achieve the desired effect and the more efficient it is.

This author divided the rational decision making process into three steps. First, all possible alternatives are identified; then the results that would be obtained with each one are analyzed. Finally, the most appropriate solution is chosen by comparing the effectiveness and efficiency of each of the available options.

However, we will never be able to optimally apply this procedure because it is impossible to determine all the possible solutions to a problem, as well as to adequately predict its consequences.

In his works, Simon stated that in managerial behavior and in the organizational sphere efficiency should be prioritized over appropriateness when adopting solutions. in adopting solutions. In contrast, in private decisions this is not so important since they do not affect the functioning and performance of an organization as a whole.

Developments of this theory

Herbert Simon's model has been modified and extended by various economists, psychologists and computational scientists. The following are the most important developments and and applications of the theory of bounded rationality.

Ariel Rubinstein

This Israeli economist and mathematician raised the need to determine the most appropriate decision-making procedures in his book "Modeling Bounded Rationality" (1998). The aim of his contributions to the model of bounded rationality is that its principles can be applied in different fields.

2. Edward Tsang

Tsang, a graduate in business administration with a doctorate in computer science, states that organisms or agents that use better heuristics and algorithms make more rational decisions. and algorithms make more rational decisions.

For Tsang, these aspects are equivalent to computational intelligence, a concept used to refer to the ability of computers to learn from data obtained through observation and experimentation.

3. Huw Dixon

The British economist Huw Dixon proposed a general decision-making formula based on Simon's model. According to Dixon, if it is assumed that people will opt for near-optimal solutions, no in-depth analysis of decision making under bounded rationality is required.

4. Gerd Gigerenzer

Gigerenzer is a German psychologist interested in decision making, specifically in bounded rationality and heuristics. According to this author, heuristics are in many cases more effective than optimal more effective than optimal decision-making procedures, since they are not as irrational as optimal procedures.Heuristics are not as irrational as other theorists claim and allow for very efficient problem solving.

5. Daniel Kahneman

Israeli-born Kahneman is a psychologist famous for having won a Nobel Prize in economics. Nobel Prize in economics. His most important contributions have to do with the description of heuristics and cognitive biases, carried out jointly with Amos Tversky.

Kahneman believes that the bounded rationality model can be very useful in overcoming the limitations of economic theories of rational decision making.