Herbert Simon's Decision-Making Theory

This assignment analyzes Herbert Simon's influential theory of decision-making, focusing on the concepts of bounded rationality and the constraints that influence managerial decisions. It examines how Simon's ideas address the gap between ideal rationality and practical decision-making in organizations. The essay also explores the limitations of Simon's theory and its implications for understanding real-world decision processes.

Running head: CONCEPTS OF DECISION-MAKING
Concepts of Decision-Making Part 1
Name of the Student
Name of the university
Author’s Note

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Part 1
Introduction
Herbert A. Simon was among the most influential social scientist of the 20th century. His
work on decision-making in the year 1957 was revolutionary and is still followed. Simon
considered the organization as the structure of decision makers. According to his theory, every
member of an organization makes a decision in one way or another (Simon, 1957). However,
some of the decisions that are taken by the higher authority have an impact on the lower
segments and henceforth, have more impact in the organizational settings. He incorporates three
phases of the decision-making process that are intelligence activity, design activity and choice
activity (Simon, 1959). Besides, various concepts have been proposed by Simon in his work out
of which, judgment and decision-making process, system 1 and 2 thinking and bounded
rationality are critically discussed in this part of the assignment. The final part of the essay is
comprised of the importance of these concepts in management decision-making.
Concept 1: Judgment and decision-making process – Simon (1957) argued that the judgement
and decisions are bounded by the rationality. Human being tries their best to make rational
judgements; however, their cognitive limitations prevent them from being fully rational. Both the
cost and time limits constraints the quality and quality of the information available to the
decision-makers. Besides, human is capable of retaining only a little amount of information in
their unstable memory. Simon adapted the experimental method in explaining his theory of
judgment and decision-making process. He included psychology into the economy for the
explanation. He studied a number of participants and concluded that they hardly explore all the
parts of the problem, rather take different routes to shorten the process. It is also referred as the

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rule of thumb or heuristics. It does not guarantee the success but frequently cuts down the time
and effort in the process. It violates the perfect rationality in problem-solving. This concept gave
us the idea that it deviates from rationality, however, failed to show how it is biased. Tversky and
Kahneman’s (1974) criticized Simon’s work and pointed out the limitations of Simon’s work.
Moreover, their research showed a proper path of identifying specific systematic, directional
biases that affect human judgement. According to their view, tendency is the main facilitator in
creating biases. The tendency is commonly known as heuristics, where is short-circuits a rational
decision process by relying on a number of simplifying strategies or rule of thumb. It
simultaneously allows the decision-maker to cope with the complex environment surrounding
the decision and lead to systematic and predictable biases (Grandori, 2010). Their work
presented a field that highlights the surprising and predictable deficiencies of the human mind in
the process of decision-making. These bias-nesses could only be tackle if identified in the
process and eliminate them in prior to decision-making. Various factors similar to
overconfidence are considered as the primary conductors of biasness of decision-making by the
authors (Betsch & Haberstroh, 2014).
Concept 2: System 1 and 2 thinking – Simon, Tversky, Kahnemen and various others have
distinguished two separate system that can fix the biasness in the process of decision-making.
The first one is marked as system 1, which process human intuitive system. It is usually fast,
automatic, effortless, emotional, and implicit. On the other hand, system 2 is the decision-making
process that is slower, conscious, explicit, logical, and effortful. The second system is not always
utilize by human brain for every single decision-making process. Most of the decision-making
process is satisfied with the help of the system 1. System 2 comes into action only at the time of
important decision-making (Kahneman, 2011). However, excess use of system 1 prevents the

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brain to utilize system 2 even in the process of important decision-making and complete the
process by itself. It is the biasness in our thinking process that affects in the decision-making.
The transition of trusting the intuitive system 1 thinking towards engaging more in deliberative
system 2 thought is the only way to reduce the effects of biasness and improve the efficient
decision-making (Simon, 2013). However, the people with busy life schedule fails to show any
kind of improvement in the process. The human mind is formulated in a fashion that it always
rely on the system 1 thinking process in the rush time. Chugh’s (2004) report shows that the
professionals with a frantic pace often rely on the system 1 thinking.
Concept 3: Bounded Rationality – Simon first coined the term bounded rationality where he
opined that even though rational thinking, deductive reasoning and logic serves the purpose in
solving theoretical problems, they do not do well in practical problem-solving. In practical cases,
the behaviour of decision makers and their intellect, information about the problem and the time
to solve such a problem likely to create a scenario where the decision-making may take place
under rationality which is bound by certain conditions. Heuristics decisions are more common
than rule-based optimization methods in the real world cases. Simon pointed out three main
boundaries of decision-making that limit the persons' capability of making an accurate decision
for the organization (Grandori, 2010). They are information, intellectual ability or cognitive
ability and lack of time to make decisions. The decision-maker sometimes takes sub-optimal
decisions due to the incomplete information s/he holds about the concept. Lack of awareness of
the pros and cons of a decision is primarily caused by the incomplete information, henceforth,
creates a boundary and hinder the rational choice of the decision-makers. Intellectual ability, on
the other hand, is the capability of the decision-maker to comprehend the true nature of the
complex situations. The decision-makers sometimes fail in understanding the complexity of the

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problem at hand that leads to making a sub-optimal decision. If the decision-maker succeed in
comprehending the problem, he or she is likely to make a rational choice. Henceforth, it creates a
boundary on the otherwise rational choices of the decision makers. Shortage of time given for
decision making also lead the decision-makers to make suboptimal decision as they do not have
time to evaluate every aspects of the choices in front and settle for a rational choice. However,
Lindblom (1959) find Simon's bounded rationality limited and narrow in its usefulness as a
descriptive model of the policy-making process. He found it useful in solving straightforward
cases, but the complex cases faced by the decision-makers cannot be solved with Simon's theory.
According to him, rational approaches make too many questions about the intellectual capacity
of man and the sources of information that man can not possess. Besides, it assumes of his ability
to attach value to preferences and of the access to time and money, that organization has
(Kalantari, 2010; Barros, 2010).
Summary
These concepts proposed by Simon could always be connected with the management and
has importance in explaining the decision-making. Biasness is present in every decision made by
the management of any organization. The management of an organization has to take several
decisions every day like which the company should hire or fire or the quantity of production. The
management uses a rational decision-making process to make a fact-based decision for the
betterment. They should follow the three phases proposed by Simon that is intelligence, design,
and choice phase in every decision they make in the organization (psu.edu. 2017). Their
judgment should always bound by the rational decisions. However, the environment such as time
constrains lead the manager to take a less rational decision. They often receive short time to
make vital decisions that require a long research for making a rational decision. They are often

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constrained with the bounded rationality as proposed by Simon. Moreover, they follow the
system 1 for their decision-making instead of system 2 that is required for proper fulfilment of
the process. Simon identified four constraints that lead the managers to take decisions that are
less than rational. They are satisficed, heuristics, alternatives and simplistic. In all the cases, the
manager takes the decision that is near rational and saves their time in research. This is according
to Simon is a sub-optimal decision which fails to address all the aspects of rational thinking prior
to taking any decision. Simon’s theory and concepts address the issues in decision-making,
however, fails to deliver the solution required for the abolishment of the issue.
Conclusion
Simon's decision-making theory proposes several means of making rational decisions in
the workplace. The concepts discussed in the essay describe the process of making rational
decisions in the management of an organization. Simon’s theories are applicable in the ideal
world. However, the process is not always followed in the real world due to several factors
incorporated into the process of decision-making. Simon identified them as constrains of
decision-making. The time and cost are the frequent constrain that holds back a manager from
making a rational decision and take the alternatives that serve the purpose of the decision. They
often choose the system 1 over system 2, which is more logical in the process to save time and
research cost. The limitation of Simon's theory of decision-making is that it does not provide any
solution to this issue in order to make decisions that are more rational.

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References
Barros, G. (2010). Herbert A. Simon and the concept of rationality: boundaries and
procedures. Revista de economia política, 30(3), 455-472.
Betsch, T., & Haberstroh, S. (Eds.). (2014). The routines of decision making. Psychology Press.
Chugh, D. (2004). Societal and managerial implications of implicit social cognition: Why
milliseconds matter. Social Justice Research, 17(2), 203–222.
Grandori, A. (2010). A rational heuristic model of economic decision making. Rationality and
Society, 22(4), 477-504.
Kahneman, D. (2011) Thinking, Fast and Slow, New York, Farrar, Straus and Giroux.
Kalantari, B. (2010). Herbert A. Simon on making decisions: enduring insights and bounded
rationality. Journal of Management History, 16(4), 509-520.
Lindblom, C. (1959), ‘The science of muddling through’, Public Administration Review, vol. 19,
pp. 78-88, Washington: American Society for Public Administration
psu.edu. 2017. Herbert Simon's decision-making approach. Retrieved 23 September 2017, from
http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.426.4962&rep=rep1&type=pdf
Simon, H. A. (1957). Models of man; social and rational.
Simon, H.A. (1959) ‘Theories of decision-making in economics and behavioural science’.
American Economic Review, 49, 253-283.
Simon, H. A. (2013). Administrative behaviour. Simon and Schuster.

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