The Nobel Prize

Herbert A. Simon (1916–2001)

Herbert Simon was born in Milwaukee, Wisconsin, USA in 1916. He studied political science at the University of Chicago where he obtained a BA in 1936 and a PhD in 1943. His early posts included a position at the International City Managers’ Association in Chicago from 1938 to 1939. Subsequently he became Director of Administrative Measurement Studies at the Bureau of Public Administration of the University of California at Berkeley from 1939 to 1942. In 1942 Simon returned to Chicago, where he was appointed initially as an Assistant Professor of Political Science at Illinois Institute of Technology, before becoming a full professor in 1947. In 1949 he moved to Pittsburgh, where he was Professor of Administration and Psychology at the Carnegie Institute of Technology (later renamed Carnegie-Mellon University) from 1949 to 1955, and Professor of Computer Science and Psychology from 1955 until he retired in 1988.
Simon’s many offices and honours included: the Distinguished Scientific Contribution Award of the American Psychological Association in 1969; the A.M. Turing Award of the Association for Computing Machinery (with A. Newell) in 1975; a Distinguished Fellowship of the American Economic Association (1976); the James Madison Award of the American Political Science Association in 1984; the award of the National Medal of Science in 1986; the John von Neumann Theory Prize of ORSA/TIMS in 1988; the Research Excellence Award of the International Joint Conference on Artificial Intelligence in 1995; and the award of numerous honorary degrees from universities around the world. In 1978, Simon was awarded the Nobel Memorial Prize in Economics ‘for his pioneering research into the decision-making process within economic organizations’ (Nobel Foundation, 2004).

In economics Simon is best known for his important contributions to the field of behavioural decision making, especially in large organisations. His pioneering research in this area can be traced back to his PhD thesis on decision-making processes in administrative organisations, which was published (in revised form) in 1947 in his first major book entitled Administrative Behaviour. Central to this work is the idea that human decision making results in satisficing, rather than optimising, behaviour. The traditional theory of the firm is based on the assumption of an omniscient, fully rational, profit-maximising entrepreneur. In Simon’s approach, the single entrepreneur is replaced by a constellation of decision makers whose rationality is limited and who cooperate to find satisfactory solutions to the problems they face. In consequence, firms are unable to maximise profits. He argued that, in reality, people in large organisations cannot obtain or process all the information needed to make fully rational decisions. Instead, due to limitations of knowledge (for example, about the uncertain future) and the capacity to process information, people ‘satisfice’ by making decisions which result in acceptable outcomes. In other words, people make decisions which are ‘good enough’, settling for certain aspiration levels which they adjust occasionally (either upwards or downwards) when outcomes do not match targets. In his book he rejected the idea of ‘economic man’ who ‘optimises’ instead introducing the concept of ‘administrative man’ who ‘satisfices’. This view of human decision making, based on ‘limited’ rationality, or what he subsequently called ‘bounded’ rationality, results in ‘satisficing’, not optimising, behaviour.

A central aim of Simon’s research was to investigate human rationality. In another influential book entitled Models of Man (Simon, 1957), he presented a collection of essays on rational human behaviour in a social setting. This work combined economic with philosophical and psychological perspectives specifically addressing: causation and influence relationships; social processes; motivation; and rationality and administrative decision making. In a series of books published with others in the 1950s and 1960s (Simon et al., 1950; 1960a; March and Simon, 1958; Simon, 1960b; 1965) he developed the ideas first put forward in his classic book, Administrative Behaviour. His interest in human decision making also led him to undertake research in the disciplines of political science, psychology and computer science. In the last case, for example, from the mid-1950s onwards he undertook research with Allen Newell to program computers to simulate human problem-solving behaviour using heuristics based on bounded rationality. This research led to the pioneering idea that computers can exhibit an ‘artificial intelligence’ which mirrors human thinking (Simon, 1969; Newell and Simon, 1972) and to the ‘information processing revolution’ in cognitive psychology. His extensive knowledge of, and research in, political science, economics, psychology and computer science allowed him to make insightful links between the disciplines. This led Simon to make important contributions to a number of fields, most notably human cognition, artificial intelligence and management science. Furthermore he explored the implications of this wide-ranging research for economics (see Earl, 2001). While he will be remembered in economics, first and foremost, for his analysis of decision making and its applications, he also undertook work in other areas of the discipline. For example, he made important contributions to mathematical economics, including a theorem concerned with the existence of a solution to an input–output process (Hawkins and Simon, 1949).

As should be evident from this brief overview, Simon was a truly remarkable and talented individual. Over the course of a long and distinguished career he held professorships in political science, administration, psychology and computer science. Through detailed and wide-ranging research he made lasting contributions to a number of disciplines and fields. The common theme running through all his work is that it is concerned with human decision-making and problem-solving processes. Many of Simon’s most important papers have been gathered together in six volumes: Models of Discovery (Simon, 1977), a collection of his papers on the philosophy of science; Models of Thought (Simon, 1979a), a two-volume collection of his papers in psychology; and Models of Bounded Rationality (Simon, 1982; 1997), a three-volume collection, containing more than 80 articles, of his papers in economics. The legacy of Herbert Simon in economic analysis is considered in a two-volume collection of 50 papers (Earl, 2001).

Main Published Works
(1947), Administrative Behaviour, New York: Macmillan; 4th edn 1997, New York: Free Press.
(1949), ‘Note: Some Conditions of Macroeconomic Stability’ (with D. Hawkins), Econometrica, 17, July–October, pp. 245–8.
(1950), Public Administration (with V.A. Thompson and D.W. Smithburg), New York: Alfred
A. Knopf.

(1957), Models of Man, New York: John Wiley.

(1958), Organizations (with J.G. March), New York: John Wiley; 2nd edn 1993, Cambridge, MA: Blackwell.
(1960a), Planning Production, Inventories and Work Forces (with C.C. Holt, F. Modigliani and J. Muth), Englewood Cliffs, NJ: Prentice-Hall.
(1960b), The New Science of Management Decision, New York: Harper & Row; revised edn 1977, Englewood Cliffs, NJ: Prentice-Hall.
(1965), The Shape of Automation for Men and Management, New York: Harper & Row.
(1969), The Sciences of the Artificial, Cambridge, MA: MIT Press; 3rd edn 1996.
(1972), Human Problem Solving (with A. Newell), Englewood Cliffs, NJ: Prentice-Hall.
(1977), Models of Discovery, Dordrecht: Reidel.
(1979a), Models of Thought, New Haven, CT: Yale University Press.
(1979b), ‘Rational Decision Making in Business Organizations’, American Economic Review,
69, September, pp. 493–513.

(1982), Models of Bounded Rationality, 2 vols, Cambridge, MA: MIT Press.

(1992), Economics, Bounded Rationality and Cognitive Revolution (with M. Egidi, R. Marris and
R. Viale), (eds M. Egidi and R. Marris), Aldershot: Edward Elgar.

(1997), Models of Bounded Rationality, vol. 3, Cambridge, MA: MIT Press.
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