Bounded Rationality Updated

Special issue of Mind & Society. (H/T to Francesco Di Iorio)
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From April 8th to 10th 2013, the Herbert Simon Society held its first General Conference in New York. About fifty researchers from different countries and working in different areas attended the event. The conference focused on three topics which were identified as particularly relevant in the development of Simonian thought: duality of mind, creativity and alternative theories to rational expectations. A first Herbert Simon Honorary Lecture by Gerd Gigerenzer opened the conference. Gerg Gigerenzer was later elected as Chairman of the Herbert Simon Society. Joseph Stiglitz closed the conference with the second Herbert Simon Honorary Lecture.

The Herbert A. Simon Society brings together economists, social and cognitive scientists engaged in critical issues such as bounded rationality, problem solving, simulation of human thought and creativity. In particular, it gathers some of the most important economists who try to reformulate economic theory by starting from some of the non-neoclassical micro-foundations that have been developed in recent years. The Simon Society shares many interests with other Associations working on Behavioural Economics, Economic and Cognitive Social Psychology and Artificial Intelligence.

This special issue collects some of the most interesting papers presented at the conference. Katherine Simon Frank, Herbert Simon’s daughter, made some welcoming remarks and talked about her father. In describing his way of being a parent, Kathie highlights some important aspects of Herbert Simon’s intellectual nature, such as his openness, his willingness to understand the world and debate with no preconceptions. This is also one of the goals of the Herbert Simon Society.

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Herbert Simon

Since I missed marking the birth of Simon on the 15th, here’s a belated posting of an obituary by his student Edward A. Feigenbaum. (I’m pleased to report that my co-edited project with Roger Frantz commemorating the centenary of HS’s birth is coming together very nicely. HS’s daughter has been incredibly responsive towards the project).

Herbert A . Simon, winner of the 1978 Nobel Prize in Economics, died on 9 February at the age of 84. He was Richard King Mellon Professor of Computer Science and Psychology at Carnegie Mellon University. In an era when universities assiduously preserve the names of their new buildings for generous donors, the new Computer Science Building at Carnegie Mellon University is instead named for Simon and another renowned computer scientist, Allen Newell.

The hallmark of Simon’s remarkable career is the extent of his cross-disciplinary contributions: from economic theory to psychology to behavioral science to computer science. Before his Nobel Prize, Simon had already won the A. M. Turing Award, the top accolade for computer science, prompting computer scientists to refer to him as “our Nobel Prize winner.” But psychologists also awarded him their top honor, the Distinguished Scientific Contribution Award, and they too claimed him as their own.

As his graduate student, in awe of his enormous knowledge and the range of his contributions, I once asked him to explain his mastery of so many fields. His unforget-table answer was, “I am a monomaniac. What I am a monomaniac about is decision-making.” Studies and models of decision-making are the themes that unify most of Simon’s contributions.

He challenged the assumptions of mid- 20th century economic theory, the so-called Rational Economic Man model. This model assumed the omniscience of human decision-making: that humans recognize all of their possible choices and the consequences of selecting each. Simon, the empiricist, observed that Rational Economic Man does not exist. The cognitive ability of people to recognize alternatives and calculate optima is in fact quite limited. He argued that economics could not be built upon a foundation of assumptions concerning human behavior that were patently false.

As a substitute, he introduced assumptions of bounded rationality and the concept of “Satisficing” Man, who cannot maximize – or minimize because the computational demands of doing so are beyond his capability. Satisficing man makes choices that are satisfactory-good enough, rather than the best. In the early 1950s, Simon introduced his theory with two classic papers in which he argued that objects (real or symbolic) in the environment of the decision-maker influence choice as much as the intrinsic information-processing capabilities of the decision-maker. In his book The Sciences of theArtificial (1), with his usual expository skill, he made this idea easy to grasp. His metaphor was the ant on the beach: The ant makes her way from a starting point to a food source along an intricate path. But the path appears to be complex only because of the patterns of the intervening grains of sand, not because of any complex information-processing by the ant.

Collaborating with James March, Simon applied the search model of problem-solving to the study of how organizations make decisions and how they innovate. Their book, Organizations (2), is the foundation of modern organization theory. March, Richard Cyert, and others extended Simon’s theory to microeconomic phenomena in the influential book, A Behavioral Theory of the Firm (3).

Simon, the theorist, sought to give these abstractions a concrete expression from which precise predictions of human problem-solving behavior could be made. Simon tried using mathematics but found its lan-guage was not rich enough to express the complexity of the problem-solving processes he was attempting to model. With Allen Newell in 1955, he discovered the right economics language: the language of the digital computer. Newell, Simon, and J. C. Shaw of RAND invented a powerful programming language for describing complex symbol processing. They used their new language to model problem-solving processes such as proving theorems in logic. This marked the start of the field of artificial intelligence and Si-mon considered this contribution to be his finest. Many computer simulation programs of human cognition followed. Newell and Simon’s 1972 book, Human Problem Solving (4), is perhaps .- the most important book on the scientific study of human thinking in the 20th century.

For the last 25 years of his life, Simon continued to experiment and build computer models of cognition. He designed models of human expertise, scientific discov-ery (he modeled how certain historically great discoveries of science were actually made), and human memory. He worked for decades on models of the processes through which symbols are learned, recognized, retrieved, and forgotten.

If one were to read a single book that would encompass the essential Simon, I would suggest the slim volume The Sciences of the Artificial (1), written for a broad scientific audience. In an elegant and lucid way, Simon explains the principles of modeling complex systems, particularly the human in formation-processing system that we call the mind. There is no better epilogue for Herbert Simon than that imparted by one of his Carnegie Mellon University colleagues: As Herb Simon struggled to recover from complications of surgery a few days before his death, this author of nearly a thousand papers and 27 books finished a manuscript he was writing and gave instructions to his daughter about its publication.

References

1. H.A. Simon, The Sciences of the Artificial  [The Karl Taylor Compton Lectures] (MIT Press, Cambridge, MA,1969).

2. J. G. March, H. A. Simon, Organizations (Wiley, New York, 1958).

3. R.M. Cyert, J. G. March, A Behavioral Theory of the Firm (Prentice-Hall, Englewood Cliffs, NJ, 1963).

4. A. Newell, H. A. Simon, Human Problem Solving (Prentice-Hall, Englewood Cliffs, N J, 1972).

From: SCIENCE VOL 291 16 MARCH 2001

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Hayek and Behavioral Economics

Still on Hayek. Having just received my copy, I thought I’d give it another plug. My chapter Mindscapes and Landscapes: Hayek and Simon on Cognitive Extension is in this collection. The full line-up as follows:

Foreword; V. Smith

Introduction; R. Frantz & R. Leeson

Friedrich Hayek’s Behavioural Economics in Historical Context; R. Frantz

A Hayekian/Kirznerian Economic History of the Modern World; D. McCloskey

Was Hayek an Austrian Economist? Yes and No. Was Hayek a Praxeologist? No.; W. Block

Error is Obvious, Coordination is the Puzzle; P. Boettke, W. Caceres & A. Martin

Hayek’s Contribution to a Reconstruction of Economic Theory; H. Gintis

On the Relationships Between Friedrich Hayek and Jean Piaget; C. Chelini & S. Riva

Cognitive Autonomy and Epistemology of Action in Hayek’s and Merleau-Ponty’s Thought; F. Di Iorio

Hayek’s Sensory Order, Gestalt Neuroeconomics, and Quantum Psychophysics; T. Takahashi & S. Egashira

Mindscapes and Landscapes: Hayek and Simon on Cognitive Extension; L. Marsh

Hayek’s Complexity Assumption, Ecological and Bounded Rationality, and Behavioural Economics; M. Altman

Subjectivism and Explanations of the Principle; S. Fiori

Satisficing and Cognition; Complementarities between Simon and Hayek; P. Earl

The Oversight of Behavioural Economics on Hayek’s Insight; S. Rizzello & A. Spada

Complexity and Degeneracy in Socio-Economic Systems; G. Steel & H. Hosseini

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Inaugural Herbert Simon Society Conference

The Italian Cultural Institute of New York
The International Herbert A. Simon Society
The Italian Academy for Advanced Studies in America

cordially invite you to the

1st Conference Herbert Simon Society
BOUNDED RATIONALITY UPDATED
New York (USA), April 8th-10th 2013

8th-9th April
Italian Cultural Institute
686 Park Avenue, New York, NY 10065

10th April
The Italian Academy for Advanced Studies in America, Columbia University
1161 Amsterdam Avenue, New York, NY 10027

The Herbert A. Simon Society brings together some of the most important economists critical of contemporary economic models and aims at reformulating economic theory by starting with the many non-neoclassical directions that have been developed in recent years.This conference is focused on three themes that were identified as particularly relevant in order to apply Simon’s ideas in the contemporary debate: duality of mind, creativity, critics and alternative paradigms to rational expectations.

Welcoming Remarks
Natalia Quintavalle (Consul General)
Riccardo Viale (Director Italian Cultural Institute) and Massimo Egidi (Herbert Simon Society)

Introduction: Katherine Simon Frank

Lectures:
Gerd Gigerenzer: Homo Heuristicus: Why biased minds make better inferences
Roy Radner: Bounded rationality: In search of a definition
Alan Kirman: Is it rational to have rational expectations?
Ron Sun: On implicit vs. explicit and fast vs. slow processes
David Over: New paradigm psychology of reasoning and rationality
Laura Macchi: The interpretative function of thinking in insight problem solving
Jonathan Schooler: Keeping the mind open for inspiration
Joseph Stiglitz: Rethinking macroeconomics: What went wrong and how to fix it

Parallel sessions on:
Rational expectations, bounded rationality, markets and investments
Slow and fast thinking
Creativity and other stuffs

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Hayek and Behavioral Economics

My chapter Mindscapes and Landscapes: Hayek and Simon on Cognitive Extension is published in this collection today. The full line-up as follows:

Foreword; V.Smith
Introduction; R.Frantz & R.Leeson
Friedrich Hayek’s Behavioural Economics in Historical Context; R.Frantz
A Hayekian/Kirznerian Economic History of the Modern World; D.McCloskey
Was Hayek an Austrian Economist? Yes and No. Was Hayek a Praxeologist? No.; W.Block
Error is Obvious, Coordination is the Puzzle; P.Boettke, W.Caceres & A.Martin
Hayek’s Contribution to a Reconstruction of Economic Theory; H.Gintis
On the Relationships Between Friedrich Hayek and Jean Piaget; C.Chelini & S.Riva
Cognitive Autonomy and Epistemology of Action in Hayek’s and Merleau-Ponty’s Thought; F.Di Iorio
Hayek’s Sensory Order, Gestalt Neuroeconomics, and Quantum Psychophysics; T.Takahashi & S.Egashira
Mindscapes and Landscapes: Hayek and Simon on Cognitive Extension; L.Marsh
Hayek’s Complexity Assumption, Ecological and Bounded Rationality, and Behavioural Economics; M.Altman
Subjectivism and Explanations of the Principle; S.Fiori
Satisficing and Cognition; Complementarities between Simon and Hayek; P.Earl
The Oversight of Behavioural Economics on Hayek’s Insight; S.Rizzello & A.Spada
Complexity and Degeneracy in Socio-Economic Systems; G.Steel & H.Hosseini

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Herbert Simon as Behavioral Economist

Here is a draft of a co-authored entry for Real World Decision Making: An Encyclopedia of Behavioral Economics. Morris Altman, editor. Santa Barbara: Praeger.