Empirical evidence for bounded rationality

In psychology during the past fifty years, there has been a great renaissance of interest in human thinking. As a result, it is more feasible now than when Administrative Behavior was first written to construct a model of rational choice that incorporates the actual properties of human behavior and at the same time matches some of the formal clarity of the economic model. Two crucial alterations are needed to transmute the economic man of Chapter IV into the administrator of Chapter V—the person of bounded rationality whom we recognize from everyday life.

1. Whereas economic man supposedly maximizes—selects the best alternative from among all those available to him—his cousin, the administrator, satisfices—looks for a course of action that is satisfactory or “good enough.” Examples of satisficing criteria, familiar enough to business people, if unfamiliar to most economists, are “share of market,” “reasonable profit,” “fair ”²⁵
2. Economic man purports to deal with the “real world” in all its The administrator recognizes that the perceived world is a drastically simplified model of the buzzing, blooming confusion that con- stitutes the real world. The administrator treats situations as only loosely connected with each other—most of the facts of the real world have no great relevance to any single situation and the most significant chains of causes and consequences are short and simple. One can leave out of account those aspects of reality—and that means most aspects—that appear irrelevant at a given time. Administrators (and everyone else, for that matter) take into account just a few of the factors of the situation regarded as most relevant and crucial. In particular, they deal with one or a few problems at a time, because the limits on attention simply don’t permit everything to be attended to at once.

Because administrators satisfice rather than maximize, they can choose without first examining all possible behavior alternatives and without ascertaining that these are in fact all the alternatives. Because they treat the world as rather empty and ignore the interrelatedness of all things (so stupefying to thought and action), they can make their decisions with relatively simple rules of thumb that do not make impossible demands upon their capacity for thought. Simplification may lead to error, but there is no realistic alternative in the face of the limits on human knowledge and reasoning.

But how do we know that this is a correct description of administrative decision-making—more accurate, for example, than the model of economic man? The first test, and perhaps not the least important, is the test of common sense. It is not difficult to imagine the decision-making mechanisms that the administrator of bounded rationality would use. Our picture of decision- making fits pretty well our introspective knowledge of our own judgmental processes.

But the theory also passes a more severe test: It fits the mass of obser- vations of human decision processes that have been made by the psychologists and researchers on organization and management who have studied them. The past forty years have seen enormous progress in what has come to be called “information processing psychology.” Human thought processes in difficult problem-solving, concept-attainment, and decision-making tasks have been described successfully in terms of basic symbol-manipulating processes. These explanations have been carried out in sufficient detail so that computer programs have been written to simulate the human behavior, and close matches have been obtained between the outputs of the computer programs and the thinking-aloud protocols of human subjects engaged in the same tasks.²⁶

This is not the place to describe these developments in detail. What is important for our purposes is that the basic postulates about human rationality supported by these simulations of behavior are essentially the postulates of the satisficing decision-maker, described above. Nor have the tests of these new theories been limited to laboratory tasks. To cite a few examples, a careful analysis has been carried out, in information-processing terms, of how students completing a graduate program in business made their first job selections; programs have been written that are capable of making medical diagnoses and one of these is marketed commercially; a program simulates the processes an expert accountant uses to identify corporate problems by examination of financial records; the screening of applicants for credit has been simulated.⁴⁶ Other examples will be supplied later in this commentary.

In view of the large body of evidence that now supports the concepts of bounded rationality and satisficing, the description of human rationality in Chapters IV and V is no longer hypothetical but has been verified in its main features.

Source: Simon Herbert A. (1997), Administrative Behavior, Free Press; Subsequent edition.