Simplifying Herbert Simon

Abstract

This article focuses on the research on the decision-making process within economic organizations conducted by economist Herbert A. Simon, which won him the Prize in Economic Sciences in Memory of Alfred Nobel in 1978. In his research on decision making, Simon started from the conviction that human rationality was bounded due to external, social constraints and internal, cognitive limitations. Since neoclassical economics gave little attention to these decision-making restrictions, he felt it was not at all serious about describing the formal foundations of rationality, whereas he was. Misrepresentations of Simon’s non-neoclassical insights concern attempts to use his bounded rationality program in an attempt to strengthen the mainstream. Rational expectations economist Thomas J. Sargent published Bounded Rationality in Macroeconomics in 1993 and tried to make connections to Simon’s insights. Economist Robert Aumann stimulated research on modeling bounded rationality in game theory. Bounded rationality permits solutions to be reached that game theorists want to obtain but cannot do so from fully rational players. The attempts to make a nonorthodox economist palatable for the Nobel Prize committee and to recruit a critic of neoclassical economics to strengthen the mainstream call for detailed historical evaluations.