| Notes |
Sociology and economics
Simon has been credited for revolutionary changes in microeconomics. He is responsible for the concept of organizational decision-making as it is known today. He also was the first to discuss this concept in terms of uncertainty; i.e., it is impossible to have perfect and complete information at any given time to make a decision. While this notion was not entirely new, Simon is best known for its origination. It was in this area that he was awarded the Nobel Prize in 1978.[45]
At the Cowles Commission, Simon's main goal was to link economic theory to mathematics and statistics. His main contributions were to the fields of general equilibrium and econometrics. He was greatly influenced by the marginalist debate that began in the 1930s. The popular work of the time argued that it was not apparent empirically that entrepreneurs needed to follow the marginalist principles of profit-maximization/cost-minimization in running organizations. The argument went on to note that profit maximization was not accomplished, in part, because of the lack of complete information. In decision-making, Simon believed that agents face uncertainty about the future and costs in acquiring information in the present. These factors limit the extent to which agents may make a fully rational decision, thus they possess only "bounded rationality" and must make decisions by "satisficing", or choosing that which might not be optimal, but which will make them happy enough. Bounded rationality is a central theme in behavioral economics. It is concerned with the ways in which the actual decision making process influences decision. Theories of bounded rationality relax one or more assumptions of standard expected utility theory.
Further, Simon emphasized that psychologists invoke a "procedural" definition of rationality, whereas economists employ a "substantive" definition. Gustavos Barros argued that the procedural rationality concept does not have a significant presence in the economics field and has never had nearly as much weight as the concept of bounded rationality.[46] However, in an earlier article, Bhargava (1997) noted the importance of Simon's arguments and emphasized that there are several applications of the "procedural" definition of rationality in econometric analyses of data on health. In particular, economists should employ "auxiliary assumptions" that reflect the knowledge in the relevant biomedical fields, and guide the specification of econometric models for health outcomes.
Simon was also known for his research on industrial organization.[47][48] He determined that the internal organization of firms and the external business decisions thereof, did not conform to the neoclassical theories of "rational" decision-making. Simon wrote many articles on the topic over the course of his life, mainly focusing on the issue of decision-making within the behavior of what he termed "bounded rationality". "Rational behavior, in economics, means that individuals maximize their utility function under the constraints they face (e.g., their budget constraint, limited choices, ...) in pursuit of their self-interest. This is reflected in the theory of subjective expected utility. The term, bounded rationality, is used to designate rational choice that takes into account the cognitive limitations of both knowledge and cognitive capacity. Bounded rationality is a central theme in behavioral economics. It is concerned with the ways in which the actual decision-making process influences decisions. Theories of bounded rationality relax one or more assumptions of standard expected utility theory".[This quote needs a citation]
Simon determined that the best way to study these areas was through computer simulations. As such, he developed an interest in computer science. Simon's main interests in computer science were in artificial intelligence, human–computer interaction, principles of the organization of humans and machines as information processing systems, the use of computers to study (by modeling) philosophical problems of the nature of intelligence and of epistemology, and the social implications of computer technology.[citation needed]
In his youth, Simon took an interest in land economics and Georgism, an idea known at the time as "single tax".[18] The system is meant to redistribute unearned economic rent to the public and improve land use. In 1979, Simon still maintained these ideas and argued that land value tax should replace taxes on wages.[49]
Some of Simon's economic research was directed toward understanding technological change in general and the information processing revolution in particular.[citation needed] |