Discussion of the Paper "A Behavioral Model of Rational Choice", by Herbert A. Simon

Motivation Argument Conclusions References
Discussion
A Behavioral Model of Rational Choice
by Herbert A. Simon
Quarterly Journal of Economics, v.49, Feb.1955
Matheus Albergaria de Magalhães
Economia das Organizações II
Universidade de São Paulo (USP)
March 25th, 2015
A Behavioral Model of Rational Choice (Simon 1955)

SECTIONS
Motivation
Argument
Conclusions
References

MOTIVATION
Traditional theories postulate an "economic man".
Characteristics:
1. Complete knowledge of relevant aspects of his environment.
2. Well-organized and stable system of preferences.
3. Excellent computation skills.

MOTIVATION
Simon’s (1955) main goals:
Replace the deﬁnition of global rationality of the "economic
man".
New rational behavior must be compatible with
information access and computational capacities possessed by
organisms (including man).

ARGUMENT
Rational behavior require the following elements:
1. A set of behavior alternatives (A).
2. A subset of behavior alternatives that the organism
"considers"or "perceives" ( ˙A ⊂ A).
3. Possible states of affairs, or outcomes of choice (S).
4. A payoff function (V(s)) deﬁned ∀s∈S.
5. Information as to wich outomes in S will occur if a
particular alternative a in A (or ˙A) occurs.
6. Information as to the probability that a particular outcome
will ensue if a particular behavior alternative is chosen.

Example: Prisoners’ Dilemma
Player 2
Confess Don’t Confess
Player 1 Confess -5,-5 -1,-10
Don’t Confess -10,-1 -2,-2

"Classical" Concepts of Rationality:
1. Max-min Rule:
ˆV(â) = Mins∈Sa V(s) = Maxa∈AMins∈Sa V(s)
2. Probabilistic Rule:
ˆV(â) =
s∈Sa
V(s)Pâ(s) = Maxa∈A
s∈Sa
V(s)Pâ(s)
3. Certainty Rule:
ˆV(â) = V(Sâ) = Maxa∈AV(Sa)

ARGUMENT
The above rationality concepts make severe demands upon
the choosing organism:
The organism must be able to attach deﬁnite payoffs to each
possible outcome.
It must have the ability to specify the exact nature of the
outcomes.
Payoffs must be completely ordered.
Either outcomes of particular alternatives must be known
with certainty, or at least it must be possible to attach
deﬁnite probabilities to them.

ARGUMENT
Empirical Proposition: there is a complete lack of evidence that,
in actual human choice situations of any complexity, such
computations are in fact performed.
Basic Procedure: introduce some modiﬁcations that appear to
correspond to observed behavior processes in humans, and that
lead to substantial computational simpliﬁcations in the making of
a choice.

ARGUMENT
Figure 1
"Simple" Payoff Functions
Source: Simon (1955, p.105).

ARGUMENT
Figure2
Partial Ordering of Payoffs
Source: Simon (1955, p.109).

ARGUMENT
Dynamics:
1. Aspiration level at time t depends upon the previous history
of the system.
2. Payoffs in a particular trial may depend not only on the
alternative chosen in that trial but also on alternatives
chosen in previous trials.
3. The consequences that the organism experiences may
change the payoff function.
4. One choice method may be to select a particular
alternative and experience its consequences.

CONCLUSIONS
Main goal of the paper: to construct deﬁnitions of rational
choice which were modeled more closely upon actual decision
processes by organisms.
Broader goal: provide some material for the construction of a
theory of the behavior of a human individual or of groups of
individuals who are making decisions in an organizational
context.

CONCLUSIONS
Impressions:
Further attempts to reﬁne the hypothesis and related
concepts (Simon 1976).
Bounded rationality seemed to have a major impact on
Institutional Economics (North 1990) and other social
sciences (Jones 1999)..
..but its adoption among mainstream economists was still
limited (Simon 1978).
Challenge: integrate this rationality concept in standard
models of ﬁrm and organizational behavior.

REFERENCES
JONES, B.D. (1999). Bounded rationality. Annual Review of Political Science, 2,
297-321.
NORTH, D. (1990). Institutions, institutional change and economic performance.
Cambridge: Cambridge University, 3-35.
SIMON, H.A. (1955). A behavioral model of rational choice. Quarterly Journal
of Economics, 49, 99-118.
SIMON, H.A. (1976). From substantive to procedural rationality. In S.J. Latsis
(Ed.), Method and Appraisal in Economics (pp.129-148). Cambridge: Cambridge
University.
SIMON, H.A. (1978). Rational decision-making in business organizations. Nobel
Prize Lecture.

Thank You
matheus.albergaria.magalhaes@gmail.com
http://www.sites.google.com/site/malbergariademagalhaes

Discussion of the Paper "A Behavioral Model of Rational Choice", by Herbert A. Simon

Recomendados

Recomendados

Mais conteúdo relacionado

Mais procurados

Mais procurados (20)

Destaque

Destaque (20)

Semelhante a Discussion of the Paper "A Behavioral Model of Rational Choice", by Herbert A. Simon

Semelhante a Discussion of the Paper "A Behavioral Model of Rational Choice", by Herbert A. Simon (20)

Mais de Matheus Albergaria

Mais de Matheus Albergaria (20)

Último

Último (20)

Discussion of the Paper "A Behavioral Model of Rational Choice", by Herbert A. Simon