POLITICAL SCIENCE & PUBLIC ADMINISTRATION Prepared for: Arya
Herbert Simon’s Concept of Rational Decision-
Making & Bounded Rationality
COMPREHENSIVE 30-MARK STUDY NOTES
Introduction: The Behavioral Revolution in Administration
Herbert Simon (1916–2001) fundamentally transformed the study of public administration,
political science, and economics through his seminal work, Administrative Behavior (1947).
Prior to Simon, classical theorists (like F.W. Taylor and Max Weber) viewed organizations
purely in terms of structure, hierarchy, and mechanical efficiency.
Simon rejected this, arguing that decision-making is the heart of administration. He
proposed that to understand an organization, one must understand how decisions are
made within it. He famously stated that an organization is a complex network of decision-
making processes. For his groundbreaking work on decision-making within economic
organizations, Simon was awarded the Nobel Prize in Economics in 1978.
1. Simon’s Anatomy of Decision-Making
To understand bounded rationality, one must first understand how Simon deconstructs the
decision-making process. He defines a decision as a choice made between competing
alternatives.
The Three Stages of Decision-Making
Simon conceptualized decision-making not as a single event, but as a continuous, three-step
process:
• Intelligence Activity: The initial phase involves scanning the environment to identify
conditions that require a decision. The administrator acts as an investigator, gathering
data and recognizing a problem.
• Design Activity: Once a problem is identified, the decision-maker invents, develops, and
analyzes possible courses of action. This involves generating various alternatives and
anticipating the consequences of each.
• Choice Activity: The final step is selecting a specific course of action from the
alternatives developed in the design phase.
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THE FACT-VALUE DICHOTOMY
Simon argued that every decision rests on two types of premises:
• Value Premise: The "ought to be." This relates to the ultimate goals, morals, and
objectives of the organization. (Subjective)
• Factual Premise: The "what is." This relates to observable, measurable data and the
means used to achieve the goals. (Objective)
While administrators cannot completely remove their personal values, a rational
administrative decision should be based as heavily as possible on verifiable facts.
2. The Core Focus: Bounded Rationality
The most critical pillar of Herbert Simon's theory is the concept of Bounded Rationality,
which served as a direct and devastating critique of classical economic theories.
The Myth of the "Economic Man"
Classical economics relied on the model of the "Economic Man" (Homo economicus), a
hypothetical decision-maker who possesses:
• Omniscience: Complete knowledge of all available alternatives.
• Perfect Foresight: The ability to accurately predict the exact consequences of every
alternative.
• Maximization: The ability to calculate and consistently choose the absolute best
(optimal) alternative.
Simon argued that the "Economic Man" is a myth. Human beings simply do not have the
brainpower, the time, or the resources to be perfectly rational.
Defining Bounded Rationality
Simon introduced the concept of Bounded Rationality to describe how humans actually
make decisions in the real world. According to this concept, human rationality is bounded
(limited) by internal cognitive constraints and external environmental factors.
Instead of perfect rationality, individuals exhibit intended rationality. They want to be
rational, but they are limited by reality.
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The Constraints that "Bound" Rationality
• Cognitive Limitations: The human mind has a limited capacity to store, process, and
retrieve information. It is impossible to hold every variable in one's head
simultaneously.
• Information Asymmetry: Information is rarely complete. Decision-makers often
operate with fragmented, hidden, or ambiguous data.
• Time and Cost Constraints: Searching for every possible alternative requires time and
money. In the real world, decisions must be made swiftly, and exhaustive data collection
is often too expensive.
• Complex Environments: Organizations operate in a dynamic, unpredictable world. The
consequences of any action are influenced by countless uncontrollable external
variables.
• Psychological Biases: Human beings are influenced by habits, personal biases, fatigue,
and organizational loyalties, which skew objective calculations.
3. The "Administrative Man" and Satisficing
Because perfect rationality is impossible, Simon replaced the "Economic Man" with the
"Administrative Man."
While the Economic Man seeks to optimize (find the absolute maximum benefit), the
Administrative Man seeks to satisfice. The term "satisficing" is a portmanteau of "satisfy"
and "suffice." It means choosing the first alternative that meets a minimum threshold of
acceptability.
The Process: The decision-maker sets a basic criterion for what constitutes a "good enough"
solution. They then evaluate alternatives one by one. The moment they find an alternative
that meets their basic criteria, they stop searching and choose it. They do not look for the
"best" option, only the one that is sufficient to solve the problem at hand.
Example of Satisficing: If an organization needs to hire a new manager, perfect
rationality (optimizing) would require interviewing every single qualified candidate on
Earth to find the absolute best one. Bounded rationality dictates that the organization
will establish a list of required qualifications, interview a batch of local candidates, and
hire the first person who adequately meets all the requirements (satisficing).
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4. The Role of the Organization in Bounded Rationality
If individuals are cognitively limited, how do complex institutions manage to function
effectively? Simon argued that the primary purpose of an organization is to help
individuals overcome the limits of their bounded rationality.
The organization acts as an extension of the human mind, providing a psychological and
structural environment that simplifies decision-making. It does this through:
• Division of Labor: Breaking down complex problems into smaller, manageable parts,
allowing individuals to focus their limited cognitive resources on a narrow area.
• Standard Operating Procedures (SOPs): Providing pre-calculated, routine responses to
recurring problems, which saves decision-makers from having to "reinvent the wheel"
every time.
• Hierarchy and Authority: Channeling decisions to the appropriate levels, ensuring that
overarching value premises are set by top management, while factual, day-to-day
premises are handled by lower management.
• Communication Channels: Ensuring that the right information reaches the right
decision-maker at the right time, minimizing the burden of information gathering.
Conclusion: Significance and Legacy
Herbert Simon’s concept of bounded rationality shifted the study of administration from
prescriptive (how decisions should be made) to descriptive/behavioral (how decisions are
actually made). By dismantling the myth of total rationality, he provided a highly realistic,
empirically grounded framework for understanding public and private institutions.
His concepts of the "Administrative Man" and "satisficing" remain foundational not just in
political science and public administration, but they also laid the groundwork for modern
behavioral economics and organizational psychology, proving that acknowledging human
limitations is the first step toward building more effective, rational organizations.
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