Herbert Alexander Simon (1916–2001) was a pioneer researcher in multiple scientific and economic fields, including behavioral economics, organizational theory, and artificial intelligence. For most of his career, he taught at Carnegie Technical Institute in both the psychology and computer science departments.
A Founding Father of Artificial Intelligence
Simon’s early investigations in economics form the basis for much of his life’s work, earning him the 1978 Nobel Memorial Prize in Economics “for his pioneering research into the decision-making process within economic organizations.” To test his research, Simon also created new methodologies. He determined the best approach was through computer simulation modeling, a process that led to the computer science studies that would make him one of the founding fathers of Artificial Intelligence.
In 1955, he and Allen Newell created the "Logic Theorist,” a computer program that would eventually prove 38 of the first 52 theorems in Russell and Whitehead's Principia Mathematica. They presented this paper at the 1956 Dartmouth Conference that founded, defined, and named the new field of Artificial Intelligence. Simon was perhaps a bit too optimistic about AI; in 1965, he announced that “machines will be capable, within twenty years, of doing any work a man can do.”
Bounded Rationality and Behavioral Economics
Simon’s concept of “bounded rationality” is a central element in the field of behavior economics. He was one of the first scientists to analyze uncertainty in organizational decision making, focusing on identifying the constraints under which decisions are made.
Bounded rationality means that while individuals act purposefully, they don't necessarily act as they would if they were both fully informed and completely rational. Simon identified several constraints that decision makers face, including:
- only limited, often unreliable, information regarding possible alternatives and their consequences,
- the human mind’s limited ability to evaluate and process available information, and
- time constraints under which decisions must be made.
An inability to deal with these constraints leads to the management ailment known as “analysis paralysis.”
Simon first proposed the ideas behind bounded rationality in a 1953 study for the Rand organization called A Behavioral Model of Rational Choice The first line in the paper states that it’s a “A model for the description of rational choice by organisms of limited computational ability. In 1955, Simon published his polished ideas in a similarly named paper in the Quarterly Journal of Economics. He doesn’t use the actual term “bounded rationality” here; the term first appeared in 1957, when he combined his papers in the book,Models of Man.
However, Simon does refer to “approximate rationality” and also defines an aspiration level as the “boundary between what is considered satisfactory and unsatisfactory.” In 1984, he claimed the phrase definitively, using it as the title in Volumes 1 and 2 of Models of Bounded Rationality, which compile his papers on classical and neo-classical economic theory. He published a third volume in 1997 to include his subsequent economic papers.
The Foundation of Organizational Theory
Simon writes that “the distance is so great between our present psychological knowledge of the learning and choice processes and the kinds of knowledge needed for economic administrative theory that a marking stone placed halfway between might help travelers from both directions to keep to their courses.” In his career Simon did far more than keep travelers in behavioral economics and organizational theory on course; he designed and engineered much of the course(s) they would follow.
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