Herbert Simon

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Mar 20th 2009 ,  The Economist

Herbert Simon (1916-2001) is most famous for what is known to economists as the theory of bounded rationality, a theory about economic decision-making that Simon himself preferred to call “satisficing”, a combination of two words: “satisfy” and “suffice”. Contrary to the tenets of classical economics, Simon maintained that individuals do not seek to maximize their benefit from a particular course of action (since they cannot assimilate and digest all the information that would be needed to do such a thing). Not only can they not get access to all the information required, but even if they could, their minds would be unable to process it properly. The human mind necessarily restricts itself. It is, as Simon put it, bounded by “cognitive limits”.

Hence people, in many different situations, seek something that is “good enough”, something that is satisfactory. Humans, for example, when in shopping mode, aspire to something that they find acceptable, although that may not necessarily be optimal. They look through things in sequence and when they come across an item that meets their aspiration level they go for it. This real-world behavior is what Simon called satisficing.

He applied the idea to organizations as well as to individuals. Managers do much the same thing as shoppers in a mall. “Whereas economic man maximizes, selects the best alternative from among all those available to him,” he wrote, “his cousin, administrative man, satisfices, looks for a course of action that is satisfactory or ‘good enough’.” He went on to say: “Because he treats the world as rather empty and ignores the interrelatedness of all things (so stupefying to thought and action), administrative man can make decisions with relatively simple rules of thumb that do not make impossible demands upon his capacity for thought.”

The principle of satisficing can also be applied to events such as filling in questionnaires. Respondents often choose satisfactory answers rather than searching for an optimum answer. Satisficing of this kind can dramatically distort the traditional statistical methods of market research.

Simon, born and raised in Milwaukee, studied economics at the University of Chicago. “My career,” he said, “was settled at least as much by drift as by choice”, an undergraduate field study developing what became his main field of interest—decision-making within organizations. In 1949 he moved to Pittsburgh to help set up a new graduate school of industrial administration at the Carnegie Institute of Technology. He said that his work had two guiding principles: one was the “hardening of the social sciences”; and the other was to bring about closer co-operation between natural sciences and social sciences.

Simon was a man of wide interests. He played the piano well—his mother was an accomplished pianist—and he was also a keen mountain climber. At one time he even taught an undergraduate course on the French Revolution. He was awarded the Nobel Prize for economics in 1978, to considerable surprise, since by then he had not taught economics for two decades.

Notable publications
With March, J.G., “Organizations”, John Wiley & Sons, 1958; 2nd edn, Blackwell, 1993
“Administrative Behavior: A Study of the Decision Making Processes in Administrative Organization”, The Macmillan Co, New York, 1948; 4th edn, Free Press, 1997