Abstract

1
Abstract

• Administrative Behavior is an argument against
  the classical economists view.
• Theory on bounded rationality too many choices
  and not enough time cause people to choose the
  first option that is good enough to meet their
  needs.

2
Background

• Herbert Simon researcher in the fields of
  cognitive psychology, computer science,
  economics, and philosophy. Economic theory of
  "bounded rationality 1978 Nobel in economics.
• Born Milwaukee, Wisconsin in 1916. BA, PH.D.
  from University of Chicago. Served on the faculty
  of Carnegie Mellon University.
• Pioneer in the field of artificial intelligence.
• Administrative Behavior.
• The Logic of Causal Relations.
• A Comparison of Game Theory and Learning Theory.

3
Rationalism

• Objective rationality implies three main elements
  in decision-making process.
• Knowledge Anticipation
• Foresight of Value of Outcome
• Make Choice Among all Possible Alternatives

4
Rationalism Knowledge Anticipation

• First, people look at all the different outcomes
  and choose those that are considered to be the
  best means for reaching the desired ends.
• Construction of a means-ends chain is part of the
  theory of rationality.

5
Rationalism Foresight of Value of Outcome

• People consider all consequences that follow each
  choice.
• In group behavior, one must know what actions the
  others in the group will make.
• Example military strategy.

6
Rationalism Choice Among All Possible
Alternatives

• Rank each alternative in the order of preference
  and choose the best one.
• Example A federal loan agency may decide to
  lower administration costs. Valuation

7
Limits on Rationalism

• Limits on rationality Human organizational
  behavior are intendedly rational, but only
  boundedly so (Simon, p. 88).
• Difficulty of complete knowledge and anticipation
  of consequences.
• Difficulty of knowledge of value of outcome.
• Difficulty of all possible alternatives.

8
Limits on Rationalism

• The human being has only part of the full
  conditions and laws surrounding his actions.
• Example fire department needs to know all
  probabilities of fire in order to be completely
  efficient.

9
Limits on Rationalism

• One cannot know the full value of something from
  imagination.
• We trust experts to find the facts and
  calculate their implications for us. But experts
  have their own subjective values.

10
Limits on Rationalism

• In actual behavior, we can only think of a
  limited number of all possible alternatives.

11
Empirical Evidence for Bounded Rationality

• Simon lists several empirical evidences for
  bounded rationality.
• Most people choose action that is good enough.
• The average person examines the world through a
  much simplified model of the real world.
• Most people choose their actions without first
  examining all possible behavior alternatives.
• Organizations inducements incentives.

12
Empirical Evidence for Bounded Rationality

• The average person in reality chooses a course of
  action that is good enough to satisfy his needs.
  
• Examples share of market, reasonable profit, and
  fair price.

13
Empirical Evidence for Bounded Rationality

• The average person examines the world through a
  much simplified model of the real world.
• Example public administrators deal with one or
  a few problems at a time, because the limits on
  attention simply dont permit everything to be
  attended to at once (Simon, p. 119).

14
Empirical Evidence for Bounded Rationality

• Most people choose their actions without first
  examining all possible behavior alternatives.
• Common sense confirms most of us use bounded
  rationality in our decision-making process.
• Second test is information processing psychology.
• Example of information processing psychology is
  that each person within an organization has his
  own value and agenda that may be different from
  the whole group.

15
Empirical Evidence of Bounded Rationality

• Organizations use inducements and provide
  incentives to mold human behavior.
• Example stock options, salary, status and
  prestige of the job.

16
Assessment

• Theory of bounded rationality complements the
  idea of pluralism and group theory.
• There is no way an individual can become an
  expert in all the complex issues that his group
  tackles. He gives consent for the group to think
  for him and uses bounded rationality to make
  decisions based on the information that the group
  provides for him.

17
Assessment

• I believe that many of Simons theory of bounded
  rationality apply to individual and group
  behavior in all areas of the public as well as
  the private sector.