A Behavioral Model of Rational Choice

Abstract

Introduction, 99.-I. Some general features of rational choice, 100. II. The essential simplifications, 103.-III. Existence and uniqueness of solutions, 111.-IV. Further comments on dynamics, 113.-V. Conclusion, 114. Appendix, 115. Traditional economic theory postulates an "economic man," who, in the course of being "economic" is also "rational." This man is assumed to have knowledge of the relevant aspects of his environment which, if not absolutely complete, is at least impressively clear and voluminous. He is assumed also to have a well-organized and stable system of preferences, and a skill in computation that enables him to calculate, for the alternative courses of action that are available to him, which of these will permit him to reach the highest attainable point on his preference scale. Recent developments in economics, and particularly in the theory of the business firm, have raised great doubts as to whether this schematized model of economic man provides a suitable foundation on which to erect a theorywhether it be a theory of how firms do behave, or of how they "should" rationally behave. It is not the purpose of this paper to discuss these doubts, or to determine whether they are justified. Rather, I shall assume that the concept of "economic man" (and, I might add, of his brother "administrative man") is in need of fairly drastic revision, and shall put forth some suggestions as to the direction the revision might take. Broadly stated, the task is to replace the global rationality of economic man with a kind of rational behavior that is compatible with the access to information and the computational capacitiesthat are actually possessed by organisms, including man, in the kinds of environments in which such organisms exist. One is tempted to turn * The ideas embodied in this paper were initially developed in a series of discussions with Herbert Bohnert, Norman Dalkey, Gerald Thompson, and Robert Wolfson during the summer of 1952. These collaborators deserve a large share of the credit for whatever merit this approach to rational choice may possess. A first draft of this paper was prepared in my capacity as a consultant to the RAND Corporation. It has been developed further (including the Appendix) in work with the Cowles Commission for Research in Economics on "Decision Making Under Uncertainty," under contract with the Office of Naval Research, and has been completed with the aid of a grant from the Ford Foundation.

Multiple-reason decision making based on automatic processing.

“…We hypothesized that this assumption does not hold if decision strategies are considered that capitalize on automatic processes for information integration and choice. When introducing the notion of bounded rationality, Herbert Simon (1955) already anticipated that the boundaries he described might only pertain to the deliberate side of the cognitive system: "My first empiri-cal proposition is that there is a complete lack of evidence that, in actual choice situations of any complexity, these [EU] computations can be, or are in fact, performed… but we cannot, of course, rule out the possibility that the unconscious is a better decision-maker than the conscious" (p. 104, italics added). Unfortunately, the research method regularly used in studying strategy application, Mouselab, hinders both the operation and the observation of automatic processes.…”

“…Here, information is integrated in a serial manner, processing is cognitively demanding and rather slow, and individuals using these strategies are aware of most of the underlying processes and can even verbalize them. Research in the tradition of the bounded rationality approach (Simon, 1955) has focused on the functioning of such deliberate decision strategies (cf. Frederick, 2002).…”

Probabilistic inference under time pressure leads to a cortical-to-subcortical shift in decision evidence integration

“…However, this decision process, in addition to being computationally expensive, may take longer than is practical. If the case is urgent, a doctor might forego considering all available tests and base a quick but "good-enough" decision on a subset of information (Lamberts, 2000;Payne et al, 1988;Rieskamp and Hoffrage, 2008;Wright, 1974), a form of heuristic decision-making known as satisficing (Simon, 1956(Simon, , 1955. While satisficing under uncertainty and high time pressure is ubiquitous in daily life, very little is known about its underlying computational principles and neural mechanisms.…”

A conceptual model of farmers’ informational activity: a tool for improved support of livestock farming management

“…accounts for the problem-finding and problem-solving phases underpinning decision-making processes' (Simon, 1955) upstream of the decision selection phase (Figure 7). To date, there have been few, if any, attempts to model these phases in an agronomic context.…”

“…Researchers therefore need to understand how farmers choose and use farm management-related information. One of the theoretical foundations of the work presented here is the concept of bounded rationality of Simon (1955). This theory makes allowance for the fact that (i) a decision-maker never possesses all the information that would be necessary to make an 'optimal' decision; and (ii) considerations other than technical and economic rationality come into play in decision making.…”