Bounded rationality is a way of thinking about decisions made by individuals and institutions that incorporates constraints on time, information, and cognitive resources. Herbert Simon, James March, and other scholars in the social sciences developed the concept of bounded rationality in the mid-twentieth century as a response to the rational, comprehensive decision-making model. In a comprehensive rationality model, decision makers' priorities do not change (they have stable preferences), and they seek out as much information as they need to make a decision that yields their most preferred feasible outcome (they “maximize” their utilities). The bounded rationality concept explains individual and organizational behavior consistent with empirical observations of human cognition. In contrast with comprehensive decision making, under bounded rationality individuals “satisfice” (a coinage blending “satisfy” and “suffice” )— choosing “good enough” solutions that meet their goals ( Simon 1945 ). Bounded rationality describes and predicts behavior and outputs better than does comprehensive rationality ( Conlisk 1996; Jones 2003 ).
Both approaches model how individuals and institutions compensate for external challenges to decision making. Bounded rationality takes a decision maker's internal limitations and challenges into account, whereas comprehensive rationality does not ( Jones 2001; Simon 1985 ). Bounded rationality focuses on decision makers' limited cognitive abilities as they have to make complex choices. Although decision makers are, to some extent, able to set goals and adapt to small changes in their environments, internal constraints prevent them from always making “correct” decisions ( Jones 2001 ). These constraints can include “attention, emotion, habit, and memory” ( Jones 2003, 398; Simon 1996 ). At this individual level, four principles define bounded rationality and underlie its application to organizations and institutions. As summarized by Bryan Jones ( 2003 ), these principles are intended rationality, adaptation, uncertainty, and trade-offs.
Intended rationality describes the view that humans are goal-oriented in their decision-making process (they act because they want to achieve a particular outcome), yet frequently they are unable to realize their goals when cognitive limitations interact with an unclear and complex environment ( March 1994; Simon 1977 ). The second principle, adaptation, involves the notion that humans can overcome their cognitive limits as they repeatedly face the same choices ( Newell 1990 ). Individuals can learn and improve their problem-solving abilities over time, but doing so also creates a tendency to rely on old solutions when dealing with new problems ( Jones 2003; Simon 1996 ). Uncertainty in decision making refers to the challenge of clearly defining the different aspects of a single decision, such as identifying the problem to be solved and assessing the risk involved in adopting different solutions ( Jones 2003 1957, 1996 ) notion of satisficing, which involves limits in planning long sequences of behavior, addressing one goal at a time rather than simultaneously, and searching for “good enough” rather than optimal outcomes ( Jones 2001 ). The principle of trade-offs describes how individuals make choices when they must prioritize various aspects of a decision over others and which of their different goals is most important.
Simon and his colleagues used bounded rationality to develop a behavioral theory of organizational decision making, particularly the relationship among structure, attention, and choice. Both the bounded and comprehensive rationality approaches examine how institutions compensate for external challenges to decision making, and thus help individuals accomplish as a collective body what they otherwise could not on their own. Traditional organization theory based in the rational comprehensive model (often referred to as the economic theory of the firm) views an organization's environment as well defined, which evokes similarly well-defined behaviors.
The behavioral theory of the firm rooted in bounded rationality, by contrast, notes that environmental stimuli may have unanticipated consequences and emphasizes the importance of interactions among individuals, preferences, and perceptions within a system. This theory suggests that most organizational behavior is governed by “performance programs” that routinize responses to the environment through coordinated and controlled activity ( March and Simon 1958 ). Once organizational attention has been initiated in a particular direction, it tends to persist in that direction ( Simon 1976 ). Firms learn from experience and are thus adaptively rational rather than comprehensively rational ( Cyert and March 1963 ).
A bounded rationality approach to studying political institutions builds on this organizational work and notes that institutions aggregate information and attention in addition to political preferences ( Jones 1994 ). Policy makers face an overabundance of information about what constitutes a policy problem and the effects of given solutions ( Jones and Baumgartner 2005 ). According to the bounded rationality model, political institutions help policy makers reach decisions given such uncertainty by limiting responsibility and dividing the workload. At the same time, individual-level cognition and decision making correspond to organizational processes, so that limits on individual attention produce limits on institutional attention, which affects both responses to policy problems and the selection of alternatives ( Jones 2003 ).
The combination of these factors presents individuals and institutions with a trade-off between, on one hand, spending time and resources deliberating over a problem in order to construct the appropriate solution and, on the other, minimizing the amount of time spent by choosing a prepared solution that may be inappropriate for the problem at hand ( Jones 2003 ). This phenomenon may be found in the way legislatures often delegate jurisdiction for new and emerging issues to committees that already cover similar topics. For example, biotechnology policy in the United States has become increasingly identified with medical breakthroughs, but the two congressional agriculture committees have jurisdiction over this emerging issue because they already oversee regulations for genetically modified food ( Sheingate 2006 ).
Charles Lindblom, in his 1959 article “The Science of ‘Muddling Through,” ' initially incorporated bounded rationality in formulating incrementalism, arguing first that decision makers engage in “successive limited comparisons” to overcome cognitive constraints, and second that they satisfice by adopting solutions that enjoy widespread agreement rather than those that are objectively “better” as decision makers apply prepackaged, routine solutions to newly emerging problems. Bryan Jones and Frank Baumgartner ( 2005 ) apply the bounded rationality framework to the study of the policy-making system at large. They find that human decision-making behavior interacts with the structure of institutions, causing government to disproportionately process incoming information about policy problems and produce outputs that are both incremental and punctuated. Bounded rationality produces “stickiness,” which affects outputs and reinforces the importance of attention to government agendas and policy change.
SEE ALSO Decision Making ; Governance ; Public Choice ; Rational Choice Theory ; Rational Comprehensive Decision Making .
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University of Texas at Austin
Herschel F. Thomas III
University of Texas at Arlington