Economics and Psychology. Perfect Rationality versus Bounded Rationality

Schilirò, Daniele

doi:10.1090/conm/601/11955

Cited by 1 publication

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References 32 publications

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“…Simon's major idea is to replace the unrealistic representation of the economic man, who is characterized by global rationality, with a behavior that is still rational, but that is compatible with the access to the information and the computational capacities that the man actually possesses in the environment where he lives. Thus, Simon develops his concept of bounded rationality, which represents the key interface between his works in economics and psychology (Schilirò, 2013). As Klaes and Sent (2005) state: "Simon advanced the concept of bounded rationality in an effort to include the whole range of limitations on human knowledge and human computation that prevent economic actors in the real world from behaving in ways that approximate the predictions of the neoclassical theory" (p.38).…”

Section: Already In the First Edition Of Administrativementioning

confidence: 99%

Economic Decisions and Simon’s Notion of Bounded Rationality

Schilirò¹

2018

IBR

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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.

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Section: Already In the First Edition Of Administrativementioning

confidence: 99%