Herbert A. Simon

Herbert A. Simon

Born: 1916. Died: 2001.

Biography

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 Books of Herbert A. Simon

- Administrative Behavior, 1947
- An Empirically Based Microeconomics, 1997
- Decision-Making as an Economic Resource, 1965, in Seltzer, editor, New Horizons of Economic Progress
- Decision Making and Problem Solving, 1986
- Economics and Psychology, 1963, in Koch, editor, Psychology, Vol. 6
- Economics, Bounded Rationality and the Cognitive Revolution, with Massimo Egidi, Riccardo Viale and Robin Marris, 2007
- Effects of Technological Change in a Linear Model, 1951, in Koopmans, editor, Activity Analysis of Production and Allocation
- From Substantive to Procedural Rationality, 1976, in Latsis, editor, Method and Appraisal in Economics
- The Game of Chess, in Robert J. Aumann, Sergiu Hart, editors, Handbook of Game Theory With Economic Applications Vol. 3, 1992
- Information Storage as a Problem in Organizational Design, 1970, in Goldberg, editor, Behavioral Approaches to Modern Management
- Models of Bounded Rationality, 2 volumes, 1982
- Models of Discovery, 1977
- Models of Man, 1956
- Models of My Life, 1996
- Models of Thought, 1979
- The New Science of Management Decision, 1960
- Organizations, with J.G. March, 1958
- Persuasion in Society, 2001
- Planning Production, Inventories and Work Force, with C.C. Holt, F. Modigliani and J. Muth, 1960
- Protocol Analysis - Rev'd Edition: Verbal Reports as Data, with K. Anders Ericsson, 1993
- Rationality, 1964, in Gould and Kolb, editors, Dictionary of Social Sciences
- Reason in Human Affairs, 1983
- The Role of Expectations in an Adaptive or Behavioristic Model, 1958, in Bowman, editor, Expectations, Uncertainty and Business Behavior
- Recent Advances in Organzation Theory, in Bailey, editor , Research Frontiers in Politics and Government, 1955
- The Sciences of the Artificial, 1969
- The Shape of Automation of Men and Management, 1965
- Some Strategic Considerations in the Construction of Social Science Models, 1954, in Lazarsfeld, editor, Mathematical Thinking in Social Sciences
- Theories of Bounded Rationality, 1972, in McGuire and Radner, editors, Decision and Organization

Major Articles of Herbert A. Simon

- 1943, The Incidence of a Tax on Urban Real Property, QJE
- 1947, Effects of Increased Productivity Upon the Ratio of Urban to Rural Population, Econometrica
- 1949, Some Conditions of Macroeconomic Stability, with D. Hawkins, Econometrica
- 1951, A Formal Theory of the Employment Relationship, Econometrica
- 1952, A Comparison of Organisation Theories, RES
- 1952, A Formal Theory of Interaction in Social Groups, ASR
- 1952, On the Application of Servomechanism Theory in the Study of Production Control, Econometrica
- 1952, On the Definition of the Causal Relation, J of Philosophy
- 1954, The Control of Inventories and Production Rates: A survey, with C.C. Holt, JORS
- 1954, Spurious Correlation: A Causal Interpretation, JASA
- 1955, A Behavioral Model of Rational Choice, QJE
- 1955, A Linear Decision Theory for Production and Employment Scheduling, with F. Modigliani and C.C. Holt, ManSci
- 1956, A Comparison of Game Theory and Learning Theory, Psychometrika
- 1956, Observation of a Business Decision, with R.M. Cyert and D.B.Trow, JB
- 1956, Rational Choice and the Structure of the Environment, Psychological Review
- 1957, The Compensation of Executives, Sociometry
- 1959, Theories of Decision-Making in Economics and Behaioral Science, AER
- 1960, Simulation of Individual and Group Behavior, with G. Clarkson, AER
- 1963, Aggregation of Variables in Dynamic Systems, with A. Ando, RES
- 1962, The Architecture of Complexity, Proceedings of APA
- 1962, New Developments in the Theory of the Firm, AER
- 1967, Programs as Factors of Production, Proceedings of Industrial Relations Research Association
- 1973, Technology and Environment, ManSci
- 1978, On How to Decide What to Do, RJE
- 1978, Rationality as a Process and ad as Product of Thought, AER
- 1979, Rational Decision Making in Business Organizations, AER
- 1985, Human Nature in Politics: The Dialogue of Psychology with Political Science, APSA
- 1986, How Managers Express Their Creativity, Across the Board
- 1986, Whether Software Engineering Needs to be Artificially Intelligent, IEEE Trans. on Software Engineering
- 1987, Rationality in Psychology and Economics, JB
- 1991, Organizations and Markets, JEP
- 1995, Literary Criticism: A Cognitive Approach, SHR

Quotes from Herbert A. Simon

- "Participation hypotheisis - ... Significant changes in human behavior can be bought about rapidly only if theperson who are expected to change participate in deciding what the change shall be and hw it shall be made." (from "Recent Advances in Organization Theory", 1955)

- "[Organization] is a tool that permits groups of human beings to aim at and ... achieve goals that would be far beyond the reach of their powers as individuals." (from "Recent Advances in Organization Theory", 1955)

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