Herbert A. Simon

Who Was Herbert A. Simon?

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

Simon earned his Ph.D. from the University of Chicago in 1943. After graduating, he worked in research and held teaching posts 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 administration, psychology, and computer science. He also had a hand in the establishment of several of Carnegie Mellon's departments and schools, including the Graduate School of Industrial Administration, which is now known as the Tepper School of Business.

In addition to the Nobel Memorial Prize in Economics, Simon received the A.M. Turing Award in 1975 for his work in computer science, including his contributions to the area of artificial intelligence. He also won the U.S. National Medal of Science in 1986.

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

Herbert A. Simon and Bounded Rationality

Herbert A. Simon and his theories on economic decision-making challenged classical economic thinking, including the ideas of rational behavior and the atomistic individualism of economic man. Rather than subscribing to the idea that economic behavior was rational and based upon all available information to secure the best possible outcome for an individual ("optimizing"), Simon believed decision-making was about achieving outcomes that were "good enough" for the individual based on their limited information and balancing the interests of others. Simon called this "satisficing." His term was a combination of the words "satisfy" and "suffice."

According to Simon, because humans cannot possibly obtain or process all the information needed to make fully rational decisions, they instead seek to use the information they do have to produce a satisfactory result, or one that is "good enough." He described humans as being bounded by their own "cognitive limits."

In addition to cognitive limits, Simon also wrote about how personal relations and social organizations constrain decision-making. This means that individuals often do not make decisions considering only their own interests or the individual's utility maximization, but must negotiate, exert power over, or otherwise navigate the interests of others and the rules of the institutional setting within 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 bounded rationality, decision-makers must settle for finding satisfactory solutions to the problem or problems in front of them, while being mindful of how other decision-makers in the company are solving their own problems. Within these bounds, decision-making can still be rational in that it consists of comparing the relative costs, benefits, and risks to achieve a desired result. Bounded rationality would also go on to become a foundational element in behavioral economics, which at times also questions whether human decision-making is really rational at all.

When the Royal Swedish Academy of Sciences awarded Simon the Nobel Memorial Prize in Economics for his work in this area, it noted that much of modern business economics and administrative research are based on his ideas. Simon replaced the concept of the all-knowing, profit-maximizing entrepreneur with the idea of cooperating decision-makers within a company who face informational, personal, and social limitations.

Herbert A. Simon and Artificial Intelligence

Herbert A. Simon is considered a pioneer in the foundations 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 pair called it their "machine that thinks."