Herbert A. Simon

There are many that claim that Herbert A. Simon has precipitated something like a revolution in microeconomics. This revolution is in the concept of ‘decision-making’ in organization and under uncertainty, which he claims is far away from the ‘rational man’ often assumed in mainstream microeconomics. He is certainly not the first one to come up with this critique, but he is by far the best known in this regard – and won a Nobel Memorial prize for it in 1978.

Simon started his economic life at the Cowles Commission and thus his first few contributions were in that vein. Of notable importance was his 1949 article unveiling the ‘Hawkins-Simon’ conditions for non- negative square matrices.

Simon subsequently began working on industrial organization and, among the various things he found, was that both the internal organization of firms and the external business decisions of firms seems to conform poorly with the neo-classical theories of ‘rational’ decision-making. In an avalanche of articles and books since the 1950s, Simon has focused much of his attention on the issue of decision-making – and has come up with a behavioral theory based on bounded rationality. Agents, he claim, face uncertainty about the future and costs in acquiring information in the present. These two factors, thus, limit the extent to which agents can make a fully rational decision. Thus, Simon claims, they have only bounded rationality and are forced to make decisions not by ‘maximization’ by satisficing, i.e. setting an aspiration level which, if achieved, they will be happy enough with, and if they don’t, try to change either their aspiration level or their decision. These ‘rules of thumb’ are the utmost agents can achieve in the ‘bounded’ and uncertain real world.

Simon has backed up much of his work with numerous studies on decision-making in business enterprise. Out of this, the ‘new’ theory of the firm as a satisficing as opposed to ‘maximizing’ agent has begun to take hold in industrial organization. In general, Herbert Simon’s theories of bounded rationality have become an integral part of the so-called ‘New Institutionalist Economics’.

Major Works of Herbert A. Simon

– Effects of Increased Productivity Upon the Ratio of Urban to Rural Population, 1947, Econometrica
– Administrative Behavior, 1947
– Some Conditions of Macroeconomic Stability, with D. Hawkins, 1949, Econometrica
– A Formal Theory of the Employment Relationship, 1951, Econometrica
– Effects of Technological Change in a Linear Model, 1951, in Koopmans, editor, Activity Analysis of Production and Allocation
– A Comparison of Organisation Theories, 1952, RES
– On the Application of Servomechanism Theory in the Study of Production Control, 1952, Econometrica
– A Formal Theory of Interaction in Social Groups, 1952, American Sociological Review
– The Logic of Causal Relations, 1952, J of Philosophy
– Some Strategic Considerations in the Construction of Social Science Models, 1954, in Lazarsfeld, editor, Mathematical Thinking in Social Sciences
– The Control of Inventories and Production Rates: A survey, with C.C. Holt, 1954, Journal of Operations Research Society
– Spurious Correlation: A Causal Interpretation, 1954, JASA
– The Linear Decision Theory for Production and Employment Scheduling, with F. Modigliani and C.C. Holt, 1955, Management Science
– A Behavioral Model of Rational Choice, 1955, QJE
– Rational Choice and the Structure of the Environment, 1956, Psychological Review
– Models of Man, 1956
– A Comparison of Game Theory and Learning Theory, 1956, Psychometrika
– Observation of a Business Decision, with R.M. Cyert and D.B.Trow, 1956, Journal of Business
– The Compensation of Executives, 1957, Sociometry
– The Role of Expectations in an Adaptive or Behavioristic Model, 1958, in Bowman, editor, Expectations, Uncertainty and Business Behavior
– Organizations, with J.G. March, 1958
– Theories of Decision-Making in Economics and Behaioral Science, 1959, AER
– Planning Production, Inventories and Work Force, with C.C. Holt, F. Modigliani and J. Muth, 1960
– Simulation of Individual and Group Behavior, with G. Clarkson, 1960, AER
– The New Science of Management Decision, 1960
– Aggregation of Variables in Dynamic Systems, with A. Ando, 1963, RES
– The Architecture of Complexity, 1962, Proceedings of American Philosophical Association
– New Developments in the Theory of the Firm, 1962, AER
– Economics and Psychology, 1963, in Koch, editor, Psychology
– Rationality, 1964, in gould and Kolb, editors, Dictionary of Social Sciences
– Decision-Making as an Economic Resource, 1965, in Seltzer, editor, New Horizons of Economic Progress
– The Shape of Automation of Men and Management, 1965
– The Impact of the New Information-Processing Technology, 1966, Economy
– Programs as Factors of Production, 1967, Proceedings of Industrial Relations Research Association
– The Sciences of the Artificial, 1969
– Information Storage as a Problem in Organizational Design, 1970, in Goldberg, editor, Behavioral Approaches to Modern Management
– Theories of Bounded Rationality, 1972, in Radner and Radner, editors, Decision and Organisation
– Technology and Environment, 1973, Management Science
– From Substantive to Procedural Rationality, 1976, in Latsis, editor, Method and Appraisal in Economics
– Models of Discovery, 1977
– Rationality as a Process and ad as Product of Thought, 1978, AER
– How to Decide What to Do, 1978, Bell JE
– Models of Thought, 1979
– Rational Decision Making in Business Organizations, 1979, AER
– Models of Bounded Rationality, 2 volumes, 1982
– Reason in Human Affairs, 1983
– Decision Making and Problem Solving, 1986
– Whether Software Engineering Needs to be Artificially Intelligent, 1986 IEEE Trans. on Software Engineering
– Organizations and Markets, 1991, JEP
– The Game of Chess, with J. Schaeffer, 1992
– Scientific Discovery as Problem Solving, in Egidi and Marris, editors, Economics, Bounded Rationality and the Cognitive Revolution
– Literary Criticism: A Cognitive Approach, 1995 Stanford Humanities Review
– An Empirically Based Microeconomics, 1997
– How Managers Express Their Creativity

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