Bounded Rationality: Four

Critiques and an UpdateDavide Secchi

Bournemouth University, UK

Emanuele BardoneTallinn University, Estonia

Institutions, Interactivity, Individuals

Second International Conference on Interactivity, Language, and Cognition

September 10-12, 2014 — University of Jyväskylä, Finland

Table of Contents

• The concept: Issues and challenges

• The Good, the Bad, the Ugly, and the… Pessimist

• Is there light at the end of the tunnel?

• So, what?

Bounded Rationality

(BR)

Bounded rationality is a

theory about how individuals

make rational decisions

“[R]ationality is bounded when it falls

short of omniscience. And the failures of

omniscience are largely failures of

knowing all the alternatives, uncertainty

about relevant exogenous events, and

inability to calculate consequences.”

[Simon, 1979, p. 502]

Simon, H. A. (1979). Rational decision making in business organizations. American Economic Review, 69(4):493-513; Simon,

H. A. (1955). A behavioral theory of rational choice. Quarterly Journal of Economics, 69(1):99-118; Simon, H. A. (1997).

Administrative behavior. New York: The Free Press, 4th edition.

Despite an extremely wide literature—and three Nobel

Prizes on economics awarded around BR themes—

there has been little/scarce attention on BR’s

assumptions.

Herbert A. Simon, 1978

Daniel Kahneman, 2003

Reinhard Selten, 1994

the good

rationalistic

strict teleology of means and ends

brute-force strategy to problem solving

assumption what is critical

Simon, H. A. (1979). Rational decision making in business organizations. American Economic Review, 69(4):493-513; Simon,

H. A. (1955). A behavioral theory of rational choice. Quarterly Journal of Economics, 69(1):99-118; Simon, H. A. (1997).

Administrative behavior. New York: The Free Press, 4th edition; March, J. G. and Simon, H. A. (1958). Organizations. New

York: Wiley; Mousavi, S. and Garrison, J. (1992). Toward a transactional theory of decision making: Creative rationality as

functional coordination in context. journal of economic methodology. Journal of Economic Methodology, 10(2):131-156.

the bad

rationalistic

computationalism

strict teleology of means and ends

brute-force strategy to problem solving

old-fashioned calculation-based

computer metaphor of the mind

no emotions, intuition, creativity, etc.

when rationality in involved

assumption what is critical

Simon, H. A. (1993a). Altruism and economics. American Economic Review, 83(2):156-161; Sent, E.-M. (1997). Sargent

versus simon: Bounded rationality unbound. Cambridge Journal of Economics, 21:323-338.

the ugly

isolationism

the individual acts in a social and

bodily vacuum

information is neutral and quality

differentials are overlooked

assumption what is critical

rationalistic

computationalism

strict teleology of means and ends

brute-force strategy to problem solving

old-fashioned calculation-based

computer metaphor of the mind

no emotions, intuition, creativity, etc.

when rationality in involved

Langley, A., Mintzberg, H., Pitcher, P., Posada, E., and Saint-Macary, J. (1995). Opening up decision making: The view from

the black stool. Organization Science, 6(3):260-279; Patokorpi, E. (2008). Simon's paradox: Bounded rationality and the

computer metaphor of the mind. Human Systems Management, 27: 285-294.

the pessimist

negativity

BR has been developed as the

negative of FR and maintains, as a

theory, a negative definition of

rationality and human capabilities

the individual acts in a social and

bodily vacuum

information is neutral and quality

differentials are overlooked

assumption what is critical ...

isolationism

rationalistic

computationalism

strict teleology of means and ends

brute-force strategy to problem solving

old-fashioned calculation-based

computer metaphor of the mind

no emotions, intuition, creativity, etc.

when rationality in involved

Foss, N. J. (2003). Bounded rationality in the economics of organizations: `much cited and little used'. Journal of Economic

Psychology, 24; Patokorpi, E. (2008). Simon's paradox: Bounded rationality and the computer metaphor of the mind. Human

Systems Management, 27: 285-294; Harstad, R. M. and Selten, R. (2013). Bounded-rationality models: Talks to become

intellectually competitive. Journal of Economic Literature, 51(2):496-511.

almost seventy years

of research…

negativity

BR has been developed as the

negative of FR and maintains, as a

theory, a negative definition of

rationality and human capabilities

the individual acts in a social and

bodily vacuum

information is neutral and quality

differentials are overlooked

assumption what is critical How addressed

isolationism

rationalistic

computationalism

strict teleology of means and ends

brute-force strategy to problem solving

old-fashioned calculation-based

computer metaphor of the mind

no emotions, intuition, creativity, etc.

when rationality in involved

Biases and prejudices

Heuristics

Emotions

Ambiguity

Early developments and uses

of the concept

Bazerman, M. H. (1994). Judgement in managerial decision making. New York: Wiley, 3 edition; Kahneman, D. and Tversky,

A. (1979). Prospect theory: An analysis of decision under risk. Econometrica, 47(2):263-292; Camerer, C., Loewenstein, G.,

and Weber, M. (1989). The curse of knowledge in economic settings: An experimental analysis. Journal of Political Economy,

97:1232-1254.

negativity

BR has been developed as the

negative of FR and maintains, as a

theory, a negative definition of

rationality and human capabilities

the individual acts in a social and

bodily vacuum

information is neutral and quality

differentials are overlooked

assumption what is critical How addressed

isolationism

rationalistic

computationalism

strict teleology of means and ends

brute-force strategy to problem solving

old-fashioned calculation-based

computer metaphor of the mind

no emotions, intuition, creativity, etc.

when rationality in involved

Biases and prejudices

Heuristics

Emotions

Ambiguity

Early developments and uses

of the concept

Gigerenzer, G. and Selten, R. (2001). Bounded Rationality. The Adaptive Toolbox. Cambridge, MA: MIT Press; Gigerenzer,

G., Todd, P., and Group, A. R. (1999). Simple Heuristics That Make Us Smart. New York: Oxford University Press.

negativity

BR has been developed as the

negative of FR and maintains, as a

theory, a negative definition of

rationality and human capabilities

the individual acts in a social and

bodily vacuum

information is neutral and quality

differentials are overlooked

assumption what is critical How addressed

isolationism

rationalistic

computationalism

strict teleology of means and ends

brute-force strategy to problem solving

old-fashioned calculation-based

computer metaphor of the mind

no emotions, intuition, creativity, etc.

when rationality in involved

Biases and prejudices

Heuristics

Emotions

Ambiguity

Early developments and uses

of the concept

Ariely, D. and Loewenstein, G. (2006). The heat of the moment: The effect of sexual arousal on sexual decision making.

Journal of Behavioral Decision Making, 19(2):87-98; Hanoch, Y. (2002). `Neither an angel nor an ant:' emotion as an aid to

bounded rationality. Journal of Economic Psychology, 23:1-25; Hanoch, Y., Wood, S., and Rice, T. (2007). Bounded

rationality, emotions and older adult decision making: Not so fast and yet so frugal. Human Development, 50:333-358.

negativity

BR has been developed as the

negative of FR and maintains, as a

theory, a negative definition of

rationality and human capabilities

the individual acts in a social and

bodily vacuum

information is neutral and quality

differentials are overlooked

assumption what is critical How addressed

isolationism

rationalistic

computationalism

strict teleology of means and ends

brute-force strategy to problem solving

old-fashioned calculation-based

computer metaphor of the mind

no emotions, intuition, creativity, etc.

when rationality in involved

Biases and prejudices

Heuristics

Emotions

Ambiguity

Early developments and uses

of the concept

March, J. G. (1976). The technology of foolishness. In March, J. G. and Olsen, J. P., editors, Amiguity and Choice in

Organizations. Universitetsforlaget, Bergen; March, J. G. (1978). Bounded rationality, ambiguity and the engineering of

choice. Bell Journal of Economics, 9:587-608.

a more distributed

approach

Rationalism

• Distributed cognition allows lousy relations between

means and ends

• ends (objectives) can be defined and re-defined

as the cognitive process designs itself

• means (or cognitive resources) shape both the

process and ends

• The brute-force strategy is not the only one

possible in a distributed cognitive system

Magnani, L. (2007). Morality in a technological world. Knowledge as a duty. New York: Cambridge University Press. Magnani,

L. (2009). Abductive Cognition. The Epistemological and Eco-Cognitive Dimensions of Hypothetical Reasoning. Berlin:

Springer.

Computationalism

• A distributed cognitive approach would allow

strategies other than computation:

• emotions, intuitions, time-based interactions,

etc.

• It definitely abandons the computer (or other

mechanistic parallels) as a viable metaphor of the

brain

Cowley, S. J., & Vallée-Tourangeau, F. (Eds.) (2013). Cognition beyond the brain. London: Springer; Hutchins, E. (1995).

Cognition in the Wild. Cambridge, MA: MIT Press.

Isolationism

• A distributed cognitive approach is founded on:

• cultural environments/niches

• social agencies and socializations

Bardone, E. (2011). Seeking Chances. From Biased Rationality to Distributed Cognition. New York: Springer. Clark, A. (2008).

Supersizing the mind. Embodiment, action, and cognitive extension. New York: Oxford University Press, 3rd edition; Clark, A.

and Chalmers, D. J. (1998). The extended mind. Analysis, 58:7-19; Secchi, D. and Bardone, E. (2009). Super-docility in

organizations. An evolutionary model. International Journal of Organization Theory and Behavior, 12(3):339-379; Secchi, D. &

Bardone, E. (2013a). Socially distributed cognition and intraorganizational bandwagons: Theoretical framework, model, and

simulation. International Journal of Organization Theory and Behavior , 16(4), 521-572.

Negativity

• Given the dynamic and highly unpredictability of a

distributed cognitive system,

• the emphasis is on potentials for rationality to

expand

• boundaries are no more the defining elements of

rational dynamics but the way they move (or are

re-positioned due to interactions) is

Secchi, D. (2013). Symposium on socially-distributed rationality and decision making: Introduction. International Journal of

Organization Theory and Behavior , 16(3), 360-367. Secchi, D. (2011). Extendable rationality. Understanding decision making

in organizations. New York: Springer

concluding remarks

• Some of the basic assumptions of BR are

fundamentally anchored to the way science was

positively defined in the XX Century

• There exist many ad hoc solutions to the four

(problematic) assumptions we analyzed

• The adoption of a distributed cognition approach

would undermine the most fundamental axiom of

BR (internal vs external bounds)

• What we propose in this paper puts forward a view

that updates BR

• If implications of this approach are fully developed,

we believe we can get to a different understanding

of what is rational decision making

• More theoretical and empirical research is needed

to define what this actually means

thank you very much