Herpert Simon Essay Example | Topics and Well Written Essays - 3000 words

Herpert Simon - Essay Example These observations lead to Simon’s rejection of the classical economic assumption of prefect-knowledge and to derive â€Å"bounded rationality† in decision making (Simon, etal, 1987). â€Å"In (‘On how to decide what to do’) (Simon) claims, rightly, that traditional economics has too often been concerned with what decisions are made rather than how they are made.† (Hunt 1) How decisions are made is a better real world indicator of how resources are allocated, which is the study of economics. (Hunt 2) Simon’s interest was in how man processes the limited available information and with imperfect logic. Bounded rationality â€Å"refers to peoples limited ability to make comparisons, to see into the future, and, more generally, to process information†. (Cyret 63) Simon created the term â€Å"satisficing†, presumably a hybrid term mixing satisfying and sufficing, to indicate achieving the perceived best position with imperfect informa tion. Preferring a blend of thinking, laboratory work and empirical observations of thinking and decision making, Simon wanted economists to get out of the think tanks and go observe business people making decisions. (Cyret) Simon started with the conviction that human rationality was bounded externally by social constraints and internally by cognitive restraints (Sent 227). People were not truly free to make decisions since conformity and possibility were unquantifiable constraints in the process. Bounded rationality was not concerned with symmetry or macroeconomic functions at all. It is a decision making and problem solving theory not meant to strengthen neoclassical economic thought like Nash’s game theory which Simon considered crude and incomplete. In Simon’s theory, quantification is used to enhance rationality, not create it. The management situation sets the conditions for rational thought; therefore some actions are predisposed to be viewed as nonworking solu tions (Mankelwicz 60). Common sense, or heuristics, actually applies available metrics as a screening tool. â€Å"Human perception may be as bounded in scope as our rationality†. (Mankelwicz 63). Quantitative results may be viewed as symbols, talisman. Managers may experience numbers as moral symbols, guideposts (Mankelwicz 64) Technical rationality, degree of quantification, economic, social, legal politics and political stakeholders, although largely invisible, impact the final decision, certainly the reasonable solution possibilities (Mankelwicz 65). Simon studied bounded rationality, the decision making process, under several disciplines allowing him to consider â€Å"decomposability†, the breakdown of problems into hierarchies, the systems of considering means and ends to reach a decision (Augier & Frank 584). Applying rationality, people cannot have perfect information. So, the decision making process is like the scientific methods of laboratory testing and field data collection. Neither is the sole path to truth. Neither is the sole source of perfect decisions. (Hunt 2) Managers must reach decisions through satisficing, that is being at least as optimal as the competition. It is possible the cost of optimization is greater than the reward. (Hunt 2) As early as the 1960’s, theories of systems were forming. â€Å"A system may be defined as an orderly grouping of separate but interdependent components for the purpose of attaining