Paths in contemporary economics and sciences of artificial intelligence that originate from Simon’s bounded rationality approach

Abstract

Based on the work of Herbert A. Simon, the author critically reflects on the past and current state of crucial behavioural assumptions such as rational expectations and bounded rationality. Simon recognized that the core of every organization is the pattern underlying the division of tasks and their coordination: behaviour within organizations is oriented toward goals, and goals are generally complex and hierarchical. Many intermediate sub-goals must be realized in a specific order for the final goal to be achieved. Additionally, the dynamics of organizational decisions are very complex and have two relevant aspects. First, goals are often defined in very general and ambiguous ways, thus necessitating revision of the sub-goals’ hierarchy. Second, many hidden conflicting objectives can be discovered during organizational decisions, when, again, a revision of the sub-goals and their hierarchy may become necessary. It is easy to see that, with this analytical setup, the classical theme of division of labour and coordination would dominate the scenario, leaving utility theory behind. JEL codes: B21, D03, D81

Keywords

• Simon
• behavioral economics
• artificial intelligence