Definition of Herbert A. Simon

Who was Herbert A. Simon?

Herbert A. Simon (1916–2001) was an American economist and political scientist who won the Nobel Prize in Economic Sciences in 1978 for his contributions to modern business economics and management research. It is widely associated with the theory of bounded rationality, which states that individuals do not make perfectly rational decisions due to both cognitive limits (the difficulty in obtaining and processing all the necessary information) and social limits (personal and social ties between individuals).

Simon earned his Ph.D. from the University of Chicago in 1943. After graduation, he worked in research and held teaching positions at a handful of universities before joining the Carnegie Mellon University faculty in 1949. He taught there for more than 50 years, as a professor of management. , psychology and computer science. He was also involved in the establishment of various Carnegie Mellon departments and schools, including the Graduate School of Industrial Management, now known as the Tepper School of Business.

In addition to the Nobel Prize in Economics, Simon received the AM Turing Prize in 1975 for his work in computer science, including his contributions to the area of ​​artificial intelligence. He also won the US National Medal of Science in 1986.

Simon authored dozens of journal articles and 27 books in his lifetime, including “Administrative Behavior” (1947), “The Sciences of the Artificial” (1968), and “Models of Bounded Rationality” (1982).

Key takeaways

  • Herbert A. Simon is widely associated with the theory of bounded rationality.
  • His theories challenged classical economic thinking about rational behavior.
  • He won the Nobel Prize in Economics for his contributions to modern business economics and management research.

Herbert A. Simon and bounded rationality

Herbert A. Simon and his theories on economic decision making challenged classical economic thought, including ideas of rational behavior and the atomistic individualism of economic man. Rather than subscribe to the idea that economic behavior was rational and relied on all available information to ensure the best possible outcome for an individual (“optimization”), Simon believed that decision-making was about achieving results that were “good enough” for the individual. based on your limited information and balancing the interests of others. Simon called this “satisfying.” His term was a combination of the words “satisfy” and “suffice.”

According to Simon, because humans cannot obtain or process all the information necessary to make completely rational decisions, they instead seek to use the information they have to produce a satisfactory result, or one that is “good enough.” He described humans as limited by their own “cognitive limits.”

In addition to cognitive limits, Simon also wrote about how personal relationships and social organizations limit decision-making. This means that individuals often do not make decisions considering only their own interests or the maximization of the individual’s utility, but must negotiate, exercise power or navigate the interests of others and the rules of the institutional environment in which they operate.

Together, these cognitive and social limits and the way they shape decision-making are commonly known as the theory of bounded rationality. Under a bounded rationality, decision makers must settle for finding satisfactory solutions to the problem or problems before them, being aware of how other decision makers in the company are solving their own problems. Within these limits, decision making can still be rational in the sense that it consists of comparing the relative costs, benefits, and risks to achieve the desired result. Bounded rationality would also become a fundamental element in behavioral economics, which sometimes also questions whether human decision-making is really rational at all.

When the Royal Swedish Academy of Sciences awarded Simon the Nobel Prize in Economics for his work in this area, noticed that much of modern business economics and management research is based on his ideas. Simon replaced the concept of the omniscient and profit-maximizing entrepreneur with the idea of ​​cooperating with decision makers within a company who face informational, personal and social constraints.

Herbert A. Simon and artificial intelligence

Herbert A. Simon is considered a pioneer in the fundamentals of artificial intelligence. In the mid-1950s, Simon and Allen Newell of the Rand Corporation attempted to simulate human decision-making on computers. In 1955, they wrote a computer program that was able to prove mathematical theorems. The couple called it their “thinking machine.”

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