Who was Herbert A. Simon?
In 1978, American economist and political scientist Herbert A. Simon (1916–2001) received the Nobel Memorial Prize in Economic Sciences for his contributions to contemporary corporate economics and administrative studies. He is known for the theory of bounded rationality, which states that cognitive and social limits prevent people from making perfectly rational decisions.
Simon received his Ph.D. from Chicago in 1943. After graduation, he engaged in research and taught at many colleges until joining Carnegie Mellon in 1949. He was an administration, psychology, and computer science professor for almost 50 years. He helped create various Carnegie Mellon departments and institutions, notably the Graduate School of Industrial Administration, now the Tepper School of Business.
Simon earned the A.M. Turing Award in 1975 for his computer science and artificial intelligence efforts and the Nobel Memorial Prize in Economics. He also received the 1986 National Medal of Science.
Simon wrote 27 books and hundreds of journal articles, including “Administrative Behavior” (1947), “The Sciences of the Artificial” (1968), and “Models of Bounded Rationality” (1982).
Herbert A. Simon, Bounded Rationality
Herbert A. Simon’s economic decision-making theories questioned rational conduct and individualistic economic viewpoints. Simon believed decision-making was about achieving “good enough” outcomes for the individual based on their limited information and balancing the interests of others, not rational financial behavior (“optimizing”). Simon termed this “satisficing.” He used “satisfy” and “suffice.”
Instead of making entirely logical judgments, Simon says humans use their knowledge to construct a “good enough.” He said people had “cognitive limits.”
Simon wrote about cognitive boundaries, personal relationships, and societal systems limiting decision-making. Individuals generally consider not just their personal interests or utility maximization but also negotiating with others and institutional rules.
Bounded rationality is the notion of cognitive and social boundaries and how they affect decision-making. Bounded rationality requires decision-makers to discover satisfying answers to the problem or challenges while considering how other firm decision-makers are addressing theirs. Decision-making may be logical by analyzing costs, rewards, and risks to attain a goal. Bounded rationality is a critical concept in behavioral economics that concerns the rationality of human decision-making.
The Nobel Memorial Prize in Economics, presented to Simon by the Royal Swedish Academy of Sciences, recognized his contributions to contemporary business and administrative studies. Simon replaced the all-knowing, profit-maximizing entrepreneur with cooperative business decision-makers with informational, personal, and social restrictions.
Herbert A. Simon and AI
Herbert A. Simon pioneered artificial intelligence. Simon and Allen Newell of Rand Corporation tried to imitate human decision-making on computers in the mid-1950s. They created a computer program to prove theorems in 1955. They named it their “machine that thinks.”
Conclusion
- Herbert A. Simon is famous for constrained rationality.
- On rational conduct, his views contradicted traditional economics.
- His contributions to contemporary corporate economics and administrative studies earned him the Nobel Memorial Prize in Economics.
