Simon’s Theory and Decision Making Concepts

This paper analyzes Simon’s theory and arguments with reference to a critical examination of the concepts that explain bias in decision making. The chosen concepts include bounded rationality, judgment and decision making process, systems thinking and biases.

Running head: Simon’s theory and decision making concepts 1
Part 1: Analysis of Simon’s theory in relation to discrete concepts
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Simon’s theory and decision making concepts 2
Executive Summary
Herbert Simon has gone down in history as one of the most famous proponents of economist and
decision making theories. He is the main figure beyond the theory of bounded rationality, a
principle which relates decision making to the cognitive limits within which the human mind can
stretch itself before settling on a final course of action. This paper analyzes Simon’s theory and
arguments with reference to a critical examination of the concepts that explain bias in decision
making. The chosen concepts include bounded rationality, judgment and decision making
process, systems thinking and biases.
The process of decision making involves the systematic comparison of a number of prevalent
factors. Depending on the nature of problem intended to be solved through the decision, the
variables may be many or less. In order to arrive at the final choice, application of judgment is
inevitable.
The principle of bounded rationality states that the process of decision making be it individual or
corporate is often bounded by the amount of information that an individual has. Consequently,
rationality is mainly anchored on the cognitive limitations of an individual in addition to the
amount of time that they have to make this decision.
The concept of systems thinking involves a different approach of analysis where systems and
their interrelatedness are studied in a bid to influence a definite outcome. This concept is
different from the traditional approaches which tend to break systems into their discrete elements
Biases can be defined as systematic patterns of deviation from normal ways of reasoning and is a
common concept applied in decision making in various fields. The concepts of bias, judgment
and system thinking are additional arguments which in one way or the other involve arguments
derived from Simon’s theory and have a direct impact on decision making.

Simon’s theory and decision making concepts 3
Table of Contents
Introduction…………………………………………………………………………………3
Summary of Simon’s Theory……………………………………………………………….3
Judgment and decision making……………………………………………………………..3
Bounded rationality………………………………………………………………………...4
Systems thinking……………………………………………………………………...……5
Biases………………………………………………………………………………………6
Conclusion…………………………………………………………………………………7
References…………………………………………………………………………………8

Simon’s theory and decision making concepts 4
1.0 Introduction
1.1 Summary of Simon’s Theory
Herbert Simon has gone down in history as one of the most famous proponents of
economist and decision making theories. He is the main figure beyond the theory of bounded
rationality, a principle which relates decision making to the cognitive limits within which the
human mind can stretch itself before settling on a final course of action. Simon’s theory draws
from a wide array of human experiences and the various impacts of environmental elements in
influencing decision making (Baron, 2014). His work revolves around a famous quote “how we
satisfice” a word which was coined from two words namely satisfy and suffice. Simon’s
perspective distinctively differs from other claims in the field of classical economics and tenets
of decision making. According to him, it is impossible for individuals to satisfy their needs while
relying on a particular course of action. This is because the human mind is not in a position to
assimilate and effectively digest all the information that would be required to make such an
achievement. This implies that people mainly end up settling for what they feel is good enough,
what they feel can suffice for the given situation. This is what Simon notes as satisficing. This
paper analyzes Simon’s theory and arguments with reference to a critical examination of the
concepts that explain bias in decision making. The chosen concepts include bounded rationality,
judgment and decision making process, systems thinking and biases.
2.0 Judgment and decision making
The process of decision making involves the systematic comparison of a number of
prevalent factors. Depending on the nature of problem intended to be solved through the
decision, the variables may be many or less. In order to arrive at the final choice, application of

Simon’s theory and decision making concepts 5
judgment is inevitable (Baron, 2009). This judgment must not only be accurate but also precise
enough to enhance the best decisions. This concept therefore reveals the vital position of proper
judgment in influencing effective decision making. Just like it is stipulated in Simon’s theory, the
process of decision making is often preceded by a wide array of options from which an
individual or a group of people are required to make the final choice. Simon argues that
individual end up picking the options that they personally feel is satisfactory. This may not
necessary be the optimal or perfect choice but what is considerably good enough considering the
situation. In order to arrive at what is good enough, people apply judgment. Through judgment,
the many options are eliminated in a systematic manner based on their level of satisfaction
according to the point of view of the individual seeking to make a decision. It can therefore be
noted how the concept of judgment and the proposals of Simon’s theory are interrelated elements
with a direct influence on the process of decision making (Gilovich, 2013).
3.0 Bounded rationality
The principle of bounded rationality states that the process of decision making be it
individual or corporate is often bounded by the amount of information that an individual has.
According to Gilovich (2012), rationality is mainly anchored on the cognitive limitations of an
individual in addition to the amount of time that they have to make this decision. It is a fact
worth noting that Simon’s theory is mainly stemmed from the principle of bounded rationality.
As noted by Simon, the human mind can only assimilate and digest a given amount of
information within a given duration of time. He refers to this state as the cognitive limits of an
individual. It therefore implies that decision making may not necessarily involve a single course
of action but the intrinsic consideration of various pieces of data. Despite the fact that the
information outlets may be numerous, the cognitive limits dictate that individual can only use a

Simon’s theory and decision making concepts 6
portion of this information and not the whole of it (Greenwald, 2010). Consequently, the concept
of bias plays out in this case. The individual capacity therefore settles on only the piece of
information that they consider would be satisfactory for the given situation. In the list of choices,
individuals are most likely to fall for what is good enough despite the fact that this may never be
the best choice (Hardman, 2009). This concept therefore bound decision making not only to
individual opinions but maximum extent to which these opinions can be stretched before arriving
at the best choice.
4.0 Systems thinking
The concept of systems thinking involves a different approach of analysis where systems
and their interrelatedness are studied in a bid to influence a definite outcome. This concept is
different from the traditional approaches which tend to break systems into their discrete
elements. The idea views the process of decision making as the holistic incorporation of all the
available factors instead of laying emphasis on particular points of focus. Creating a unique
balance to enhance the best outcomes is the concept’s main proposal. Simon’s theory points out
the need for consideration of myriad factors during the process of decision making. According to
the theory, all the variables which are factored in during decision making have their unique
individual significance (Kahneman, 2012). However, viewing the separate systems with the main
decision making objective in mind calls for an approach in which the overall significance of all
the systems is given more attention instead of the importance indicated by a single entity. Just
like systems thinking encourages the creation of equilibrium in the process of decision making,
Simon’s theory advocates for the effectiveness of reaching a common ground in the decision
making process. This common ground is what is considered as satisficing.

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5.0 Biases
Biases can be defined as systematic patterns of deviation from normal ways of reasoning
and is a common concept applied in decision making in various fields. One of the biases is the
ambiguity effect in which an option is omitted due to the fact that the information surrounding it
is incomplete. Since information is necessary for effective decision making, the process
eliminates options with minimal details and settles for choices characterized by more information
(Richard, 2011). In this case, it can be noted that ambiguity effect as a form of bias effectively
directs individuals into identifying the very choices that are good enough and hence satisfactory
to their needs. There is also the anchoring or focalism bias in which decision making heavily
relies on a given piece of information while disregarding others. There is also the attention bias
where decision making is influenced by recurring thoughts. In one of his illustrations, Simon
points out that past experiences in addition to a preformed opinion about a given issue has a
special way of influencing individual decision making (Plous, 2013). A past thought about an
event or object is therefore likely to influence present decision making regarding the same event
or issue.
The discussions above reveal the various concepts which have a direct impact on decision
making. Relating Simon’s theory to the various concepts has effectively brought out the steps
and approaches which are necessary for effective decision making. It is important to carry out a
careful consideration of the present factors and the potential impacts on the final decision.
Similarly, the discussion outlines the pivotal role of sober judgment in ensuring the very best
choices are made. Additionally, by highlighting the various types of biases, it is a fact worth
noting that overreliance on a unidirectional approach in decision making may not be effective
hence the need to consider a number of systems and the manner in which they are interrelated

Simon’s theory and decision making concepts 8
(Schacter, 2009). This leads to holistic analysis which in turn positively impacts decision
making.
6.0 Conclusion
Simon’s theory majorly outlines the principle of bounded rationality. The concepts of
bias, judgment and system thinking are additional arguments which in one way or the other
involve arguments derived from Simon’s theory. The discussion above indicates how Simon’s
proposals in relation to the four concepts are instrumental tools which can be harnessed by
individuals and organizations to ensure the soundest decisions are made. Despite the fact that we
are bounded by cognitive limits, a careful analysis of the information available to us would be
essential in enhancing the effectiveness and efficiency of the decision making process.

Simon’s theory and decision making concepts 9
References
Baron, J. (2014). Thinking and deciding. Cambridge, UK: Cambridge University Press.
Baron, J. (2009). Epistemology and the psychology of human judgment. New York: Oxford
University Press.
Gilovich, T. (2013). How we know whatisn’t so: the fallibility of human reason in everyday
Life. New York: The Free Press.
Gilovich, T. (2012). Heuristics and biases: The psychology of intuitive judgment. Cambridge,
UK: Cambridge University Press.
Greenwald, A. (2010). The totalitarian ego: Fabrication and revision of personal history.
American Psychological Association. 35 (7), pp. 60
Hardman, D. (2009). Judgment and decision making: psychological perspectives. New York:
Willey & Sons.
Kahneman, D. (2012). Judgment under Uncertainty: Heuristics and biases. Cambridge, UK:
Cambridge University Press.
Richard H. (2011). Anomalies: The endowment effect, loss aversion, and status quo bias.
The Journal of Economic Perspectives. 5 (1), pp. 193–206.
Plous, S. (2013). The psychology of judgment and decision making. New York: McGraw-Hill.
.

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Schacter, D. (2009). The seven sins of memory: Insights from psychology and cognitive
neuroscience . American Psychologist. American Psychological Association. 54 (3), pp.
55-60.