Models of Bounded Rationality

Emperically Grounded Economic Reason

Throughout Herbert Simon's wide-ranging career—in public administration, business administration, economics, cognitive psychology, philosophy, artificial intelligence, and computer science—his central aim has been to explain the nature of the thought processes that people use in making decisions.

The third volume of Simon's collected papers continues this theme, bringing together work on this and other economics-related topics that have occupied his attention in the 1980s and 1990s: how to represent causal ordering formally in dynamic systems, the implications for society of new electronic information systems, employee and managerial motivation in the business firm (specifically the implications for economics of the propensity of human beings to identify with the goals of organizations), and the state of economics itself.

Offering alternative models based on such concepts as satisficing (acceptance of viable choices that may not be the undiscoverable optimum) and bounded rationality (the limited extent to which rational calculation can direct human behavior), Simon shows concretely why more empirical research based on experiments and direct observation, rather than just statistical analysis of economic aggregates, is needed.

The twenty-seven articles, in five sections, each with an introduction by the author, examine the modeling of economic systems, technological change: information technology, motivation and the theory of the firm, and behavioral economics and bounded rationality.

Table of Contents

  1. Introduction
  2. Acknowledgments
  3. I. The Structure of Complex Systems
  4. I.1. Causality in Economic Models
  5. I.2. Causal Ordering, Comparative Statics, and Near Decomposability

    With Y. Iwasaki

  6. I.3. Causality and Model Abstraction

    With Y. Iwasaki

  7. I.4. Simulation of Large-scale Systems by Aggregation
  8. I.5. Prediction and Prescription in Systems Modeling
  9. II. The Advance of Information Technology
  10. II.1. The Rural-Urban Population Balance Again
  11. II.2. The Impact of Electronic Communications on Organizations
  12. II.3. The Steam Engine and the Computer: What Makes Technology Revolutionary
  13. II.4. Managing in an Information-Rich World
  14. II.5. On the Alienation of Workers and Management
  15. III. Motivation and the Theory of the Firm
  16. III.1. A Mechanism for Social Selection and Successful Altruism
  17. III.2. Organizations and Markets
  18. III.3. Altruism and Economics: A Summary Statement
  19. III.4. Altruism and Economics: Social Implications
  20. IV. Behavioral Economics and Bounded Rationality
  21. IV.1. Preface to Handbook of Behavioral Economics
  22. IV.2. Behavioural Economics
  23. IV.3. Bounded Rationality
  24. IV.4. Satisficing
  25. IV.5. Behavioral Research: Theory and Public Policy
  26. IV.6. Methodological Foundations of Economics
  27. IV.7. Preface to La Théorie Moderne de l'Enterprise: L'Approche Institutionnell
  28. IV.8. On the Behavioral and Rational Foundations of Economic Dynamics
  29. IV.9. Rationality in Psychology and Economics
  30. IV.10. The Failure of Armchair Economics
  31. IV.11. Why Economists Disagree
  32. IV.12. The State of Economic Science
  33. IV.13. Effect of Mode of Data Presentation on Reasoning about Economic Markets

    With H. J. M. Tabachneck

  34. Index