scholarly journals Economic Decisions and Simon’s Notion of Bounded Rationality

2018 ◽  
Vol 11 (7) ◽  
pp. 64 ◽  
Author(s):  
Daniele Schilirò
Keyword(s):  
Bounded Rationality ◽  
Behavioral Model ◽  
Economic Literature ◽  
Herbert Simon ◽  
Research Activity ◽  
Procedural Rationality ◽  
Neoclassical Theory ◽  
Theoretical Contribution ◽  
Economic Decisions ◽  
Satisficing Behavior

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.

The Model of Bounded Rationality: a New Methodological Tool of Economic Theory

2021 ◽  
Vol 13 (2) ◽  
Author(s):  
Maya Tsoklinova
Keyword(s):  
Economic Theory ◽  
Bounded Rationality ◽  
Neoclassical Theory ◽  
Economic Agents ◽  
Market Participants ◽  
Model Research ◽  
Methodological Tool ◽  
The Moment ◽  
Rational Behaviour ◽  
Empirical Material

The main purpose of this article is to study and analyze the economic behaviour of market participants in real conditions, and to outline the very natural trait of individuals to show bounded rationality. The theoretical framework of bounded rationality is presented, and a comparative analysis is carried out between the neoclassical theory of rational behaviour and the concept of quasi-rational economic agents according to behavioural economics. Special emphasis is placed on the correlation between the decisionmaking process and the concept of limited rationality. This article confirms the thesis that the model of the rational economic individual is not the best model. Research in this area proves that this model has great imperfections, but, at the moment, the empirical material is still not enough to create another, newer and practically applicable model of behaviour of the real economic person, which is characterized by bounded rationality.

scholarly journals Empiricism in Herbert Simon: Administrative Behavior within the evolution of the Models of Bounded and Procedural Rationality

2017 ◽  
Vol 37 (4) ◽  
pp. 719-733 ◽  
Author(s):  
ALEJANDRO HORTAL
Keyword(s):  
Psychological Factors ◽  
Common Element ◽  
Classical Approach ◽  
Herbert Simon ◽  
Procedural Rationality ◽  
Administrative Behavior ◽  
Economic Agents ◽  
The Common ◽  
Empirical Methodology

ABSTRACT This paper contextualizes Simon’s book, Administrative Behavior, within the evolution of his ideas arguing, contrary to what some have posited, that the common element that unites this book with the rest of Simon’s work is not the criticism of the classical approach, but an epistemological frame, based on an empirical methodology. This empiricism is the element that remained constant during his career and led him to introduce psychological factors when explaining the behavior of economic agents under his models of bounded and procedural rationality.

March and the pursuit of organizational intelligence: the interplay between procedural rationality and sensible foolishness

2019 ◽  
Vol 29 (1) ◽  
pp. 225-239 ◽  
Author(s):  
William Ocasio ◽  
Luke Rhee ◽  
Dylan Boynton
Keyword(s):  
Decision Making ◽  
Bounded Rationality ◽  
Organization Theory ◽  
Common Theme ◽  
Exploration And Exploitation ◽  
Procedural Rationality ◽  
Organizational Intelligence ◽  
Garbage Can Model ◽  
Causal Ambiguity

Abstract March’s long and varied career in organization theory encompasses a number of seemingly disparate themes from rationality, to ambiguity and the garbage can model, to exploration and exploitation in organizations. We examine March’s diverse research trajectory and conclude that his different insights can be brought together under one common theme for his career: that both procedural rationality and sensible foolishness are necessary for the pursuit of organizational intelligence. Traditional models of rationality, even bounded rationality, are insufficient because goals are unstable and inconsistent, and causal ambiguity leads to myopic learning or worse. To explain the interplay between procedural rationality and sensible foolishness in organizations, we explore their role in the inter-related processes of programing, monitoring, sensemaking, search, and decision making.

Incorporating Limited Rationality into Economics

2013 ◽  
Vol 51 (2) ◽  
pp. 528-543 ◽  
Author(s):  
Matthew Rabin
Keyword(s):  
Economic Theory ◽  
Bounded Rationality ◽  
Optimization Models ◽  
Neoclassical Theory ◽  
Full Rationality

Harstad and Selten (this forum) raise interesting questions about the relative promise of optimization models and bounded-rationality models in making progress in economics. This article builds from their analysis by indicating the potential for using neoclassical (broadly defined) optimization models to integrate insights from psychology on the limits to rationality into economics. I lay out an approach to making (imperfect and incremental) improvements over previous economic theory by incorporating greater realism while attempting to maintain the breadth of application, the precision of predictions, and the insights of neoclassical theory. I then discuss how many human limits to full rationality are, in fact, well understood in terms of optimization. (JEL B49, D01, D03, D81, D84)

scholarly journals Contextualized Behavior for Improving Managerial and Entrepreneurial Decision-Making

2021 ◽  
Vol 11 (1) ◽  
pp. 14
Author(s):  
Matteo Cristofaro ◽  
Maria José Sousa ◽  
José Carlos Sanchéz-Garcia ◽  
Aron Larsson
Keyword(s):  
Decision Making ◽  
Bounded Rationality ◽  
Herbert Simon ◽  
Entrepreneurial Decision

Since the conceptualization of bounded rationality by Herbert Simon (1947), management scholars started investigating how people—managers and entrepreneurs—really make decisions within (and for) organizations [...]

Bounded Rationality in Political Science and Politics

2020 ◽  
Author(s):  
Jonathan Bendor
Keyword(s):  
Bounded Rationality ◽  
Building Blocks ◽  
Rational Decision ◽  
Herbert Simon ◽  
Cognitive Capacities ◽  
Cognitive Constraints ◽  
Rational Decision Making ◽  
Long Run ◽  
Science And Politics ◽  
Allen Newell

Although Herbert Simon and Allen Newell studied problem-solving by experts as well as nonexperts, political scientists generally understand “bounded rationality” to refer primarily to cognitive constraints: how we fall short of completely rational decision-making. This incomplete understanding deprives us of an enormously useful intellectual legacy, built not only by Newell and Simon but also by a wide array of cognitive scientists who have explored how humans have collectively solved very difficult problems such as eliminating smallpox or designing nuclear submarines. This chapter surveys this richer understanding of bounded rationality. Cognitive capacities receive as much attention as cognitive constraints. The chapter reports work on how cultural storehouses of knowledge and certain organizational arrangements amplify our cognitive capacities in both the short and the long run. Finally, it extracts from the literature a set of thematically related propositions that are building blocks for constructing macro-theories of politics out of cognitively realistic micro-premises.

scholarly journals SUBSTANCINIAI IR PROCEDŪRINIAI PRAKTINIO RACIONALUMO ASPEKTAI

Problemos ◽  
2008 ◽  
Vol 73 ◽  
pp. 90-103 ◽  
Author(s):  
Zenonas Norkus
Keyword(s):  
Information Processing ◽  
Rational Choice Theory ◽  
Choice Theory ◽  
Ecological Rationality ◽  
Herbert Simon ◽  
Procedural Rationality ◽  
Substantive Rationality ◽  
The Difference ◽  
The Impact ◽  
Human Rationality

Straipsnis aptaria Herberto Simono nubrėžtą substancinio ir procedūrinio racionalumo perskyrą. Ši perskyra sukūrė konceptualias prielaidas empiriniams žmogiškojo racionalumo ribų tyrimams. Šie tyrimai turi dvi prieigas, besiskiriančias pažinimo ir pasirinkimo euristikų samprata. Vienos prieigos šalininkai (Davidas Kahnemanas, Amosas Tversky) euristikas supranta kaip žmogiškojo racionalumo anomalijų ir patologijų šaltinį, kitos (Gerdas Gigerenzeris) – kaip substancinio racionalumo simuliacijos efektyvios priemonės, dėl kurių žmogaus elgesys paprastai būna ekologiškai racionalus. Nagrinėjant šio euristikų dvilypumo priežastis, atskleidžiamos tam tikros dviprasmybės ir neaiškumai pačioje procedūrinio ir substancinio racionalumo skirtyje. Būtent ji gali reikšti skirtumą tarp informacijos apdorojimo proceso ir jo produkto; skirtumą tarp teisingų, bet nepraktiškų algoritmų ir neteisingų, bet praktiškų euristikų; skirtumą tarp „formos“ ir „turinio“ problemas sprendžiančiame elgesyje. Tą skirtį problemišką ir paslankią daro ir žinojimo apie racionalumą refleksyvus pobūdis: racionalumo teorijos transformuoja savo objektą, t. y. žmogiškąjį racionalumą. Pagrindiniai žodžiai: racionalaus pasirinkimo teorija, substancinis ir procedūrinis racionalumas, racionalumo anomalijos, ekologinis racionalumas.Substantive and Procedural Dimensions of Practical Rationality Zenonas Norkus SummaryThe article discusses the distinction between substantive and procedural rationality made by Herbert Simon, which has provided the conceptual framework for the empirical research on the boundaries of human rationality. In this research, two approaches with a different understanding of heuristics for cognition and choice are distinguished. In the first approach (David Kahneman, Amos Tversky), heuristics is interpreted as a source of the pathologies in human rationality. In the second (Gerd Gigerenzer), they are conceived as a means for an effective simulation of substantive rationality, making human behaviour ecologically rational. Discussing the reasons for this Janusfaced duplicity of heuristics, some ambiguities in the distinction between the procedural and substantive rationality are disclosed. This distinction may mean (1) the difference between the process and the product of information processing; (2) the distinction between correct but unpracticable alghoritms and incorrect but practical heuristics in information processing itself, and (3) between the form and the content (substance) in the problem solving behaviour. Another source of the problems with this distinction is reflexivity of the knowledge about rationality, i. e. the impact of the theories of rationality on their object (human rationality). Keywords: rational choice theory, substantive and procedural rationality, anomalies of rationality, ecological rationality. sans-serif;">

scholarly journals Retrospective inference as a form of bounded rationality, and its beneficial influence on learning

2019 ◽  
Author(s):  
Thomas HB FitzGerald ◽  
Will D. Penny ◽  
Heidi M Bonnici ◽  
Rick A Adams
Keyword(s):  
Bounded Rationality ◽  
Probabilistic Models ◽  
Markov Models ◽  
Sensory Information ◽  
Bayesian Filtering ◽  
Reversal Task ◽  
Theoretical Contribution ◽  
The Past ◽  
Future Work ◽  
Bayesian Smoothing

AbstractProbabilistic models of cognition typically assume that agents make inferences about current states by combining new sensory information with fixed beliefs about the past, an approach known as Bayesian filtering. This is computationally parsimonious, but, in general, leads to suboptimal beliefs about past states, since it ignores the fact that new observations typically contain information about the past as well as the present. This is disadvantageous both because knowledge of past states may be intrinsically valuable, and because it impairs learning about fixed or slowly changing parameters of the environment. For these reasons, in offline data analysis it is usual to infer on every set of states using the entire time series of observations, an approach known as (fixed-interval) Bayesian smoothing. Unfortunately, however, this is impractical for real agents, since it requires the maintenance and updating of beliefs about an ever-growing set of states. We propose an intermediate approach, finite retrospective inference (FRI), in which agents perform update beliefs about a limited number of past states. (Formally, this represents online fixed-lag smoothing with a sliding window.) This can be seen as a form of bounded rationality in which agents seek to optimise the accuracy of their beliefs subject to computational and other resource costs. We show through simulation that this approach has the capacity to significantly increase the accuracy of both inference and learning, using a simple variational scheme applied to both randomly generated Hidden Markov models (HMMs), and a specific application of the HMM, in the form of the widely used probabilistic reversal task. Our proposal thus constitutes a theoretical contribution to normative accounts of bounded rationality, which makes testable empirical predictions that can be explored in future work.

Rationale for Cognitive Machines

2010 ◽  
pp. 62-67
Author(s):  
Farley Simon Nobre ◽  
Andrew M. Tobias ◽  
David S. Walker
Keyword(s):  
Information Processing ◽  
Bounded Rationality ◽  
Fuzzy Systems ◽  
Herbert Simon ◽  
Computational Capacity ◽  
Lack Of Information ◽  
Limits Of Knowledge

This chapter outlines rationale for cognitive machines. It connects theories of bounded rationality of Herbert Simon with theories of fuzzy systems of Lotfi Zadeh in order to justify advantages of the participation of cognitive machines in organizations. The connections are derived by explaining why cognitive machines can extend limits of knowledge (lack of information) and limits of information processing and management (lack of cognition and computational capacity) of humans when participating in organizations.

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