1916-2001
Born on June 15, 1916, in Milwaukee, Wisconsin, Simon was the second son of Arthur Simon, an immigrant German who was an electrical engineer and inventor, and Edna Merkel Simon, a third-generation American who was an accomplished pianist. Determined to become a mathematical social scientist, he bid farewell to Milwaukee at age seventeen to enter the hall of academe in Chicago, where he obtained his BA in 1936 and his graduate degree in 1943, both in political science. During his professional career, he was affiliated with the University of California at Berkeley, the Illinois Institute of Technology, the Cowles Commission, the Rand Corporation, and Carnegie-Mellon University, which was still known as the Carnegie Institute of Technology when Simon moved there in 1949. At the time of his death, he was the Richard King Mellon Professor of Computer Science and Psychology at Carnegie.
Starting off in political science and then moving through several disciplinary domains such as management theory, economics, cognitive psychology, and artificial intelligence, Simon’s entire academic career was focused on understanding human decision-making and problem-solving processes and their implications for social institutions. In economics, Simon has become mostly known for his psychology-inspired criticism of the rationality postulate. In particular, he criticized the four basic assumptions of neoclassical economics: (1) the presupposition that each economic agent had a well-defined utility or profit function; (2) the idea that all alternative strategies were presumed to be known; (3) the assumption that all the consequences that follow upon each of these strategies could be determined with certainty; and (4) the presumption that the comparative evaluation of these sets of consequences was driven by a universal desire to maximize expected utility or expected profit. For Simon, these four assumptions clashed with insights from psychology that there were external, social constraints and internal, cognitive limitations to decision-making, upon which he based the opposing assumptions of his bounded rationality program.
Simon argued that, first, the bounded rationality program assumed that decision-makers were confronted by the need to optimize several, sometimes competing, goals. Second, Simon’s bounded rationality program postulated a process for generating alternatives. Third, Simon argued that individuals mostly applied approximate solutions to problems. Finally, Simon’s bounded rationality theory proposed a satisficing strategy. It sought to identify, in theory and in actual behavior, procedures for choosing that were computationally simpler and argued that individuals picked the first choice that met a preset acceptance criterion. Simon also became known for contributions such as the so-called Hawkins-Simon conditions for stability, his findings on certainty equivalence, his research on size distributions of firms and organizations, and his insights on causality, identifiability, and aggregation.
In 1978, Simon received the Nobel Prize in economics for what the Nobel committee called "his pioneering research into the decision-making process within economic organizations." Bounded rationality has received renewed attention in recent years from, among others, behavioral economists, game theorists, and rational expectations economists. Yet, whereas Simon saw bounded rationality as an alternative to mainstream economics, many contemporary theorists attempt to use his ideas to solve some of the problems in their neoclassical program.
