Herbert A. Simon: Navigating the Maze
Recently, I embarked on a long road trip. When you spend more than five hours on the road, eventually you have to make a stop for lunch or dinner. How do you decide where to eat? You could make a “safe” bet and stop at a fast food joint, or you can try the local cuisine by stopping at an unknown eatery. I usually choose the latter, which has led to some bad experiences. Safe to say, I’ve made some bad choices despite my noticing the broken door handle, overgrown landscape, and questionable folks in the parking lot.
In fact, we’ve all made bad choices in many different aspects of our lives. They can be anything ranging from a bad business deal to stuffing a raw turkey in your backpack and walk three hours to your friend’s house on thanksgiving morning. (That last one might have just been me.) But, enough about me. Hindsight reveals the better alternatives that we should have chosen. However, the standard models taught in our economics classes assumes that we all behave as the economic neanderthal, “homo economicus.” That is to say, we never make bad choices and always act in a way that is the most efficient and beneficial to our well-being, aka “profit maximizing.” Don’t worry, economists have looked into this, especially Herbert A. Simon.
Herbert A. Simon was a renaissance man who made a huge impact in multiple subfields of economics. He also dabbled in mathematics, political science, psychology and computer science. His first major impact into the study of economics was when he created a new model of input-output analysis, still used by both current Ricardian and Marxian theories. If you need a refresher on the input-output analysis, we know a guy.
However, he won the Nobel prize in 1978 “for his pioneering research into the decision-making process within economic organizations”. Basically, he wanted to discover the rationality behind our choices and decision making processes.
The idea that humans, (yes, even you) are “pure maximizers” who have the necessary know-how to make the very best choice out of all the choices was turned on its head. Simon’s claim was that we, of course, do not make the best decisions all the time because we are constrained by what he coined, “bounded rationality.” Bounded rationality makes us satisficers, which is a combination of the word satisfy and suffice. A satisficer is someone who just puts enough effort in to satisfy their desired outcomes. Know anybody that might show these characteristics? Yeah, me too.
So, what does this mean in real life? It means that when we make a decision, we do not necessarily need to find the optimal maximizing option. Consider buying a bottle of shampoo. We do not spend hours researching each bottle of shampoo and carefully selecting the best shampoo for us. (There are exceptions to this. Looking at you, shampoo fanatics! But, work with me here.) We simply choose one that satisfies our needs and suffices for the goals we have. We are rationally bounded, or limited, in our choices. We are either unable to gather all the information for our choices or unwilling to spend the time for such trivial decisions that could be better spent elsewhere.
Granted, when looking for restaurants nowadays, we have eliminated a lot of the uncertainty we used to have. We have tons of information at our fingertips, with apps like Yelp to tell us how everyone else’s experiences have been with the restaurant. But the fact of the matter is that there can never be perfect information. We won’t know if the cook is sick that day, or if the waiter just had a really bad table and is in a horrible mood.
In his autobiography, Herbert A. Simon wrote a short story that brilliantly portrayed bounded rationality called “The Apple: A Story of a Maze”. In the story, a man named Hugo is born alone and trapped in a castle that is an enormous maze. Everyday, food appears in random rooms of the castle, and Hugo goes out to search for something to eat. He eventually develops preferences for certain foods and searches for those specifically. However, the castle is enormous and there are no ways of knowing which rooms have which food. He can develop tricks he think works, such as rooms with bright paintings have the best food, but in the end he must make satisficing choices instead of maximizing ones.
His accomplishments don’t just stop there. He was also a computer scientist, and wrote frequently about artificial intelligence, or AI.
He believed that AI would one day be able to do everything humans could do. Today, his prophesying of the `70s seems to be playing out as a slew of tech companies around the globe are making huge strides in AI. His contributions to the rationality behind AI and its apparent connection to the psychology of human cognition, won him the Turing Award in 1975.
Simon claimed that AI was not just an engineering feat, but rather a science that incorporated a bunch of other disciplines, including psychology and economics. So, he brought his passion for economic decision making and his knowledge of cognitive processes in psychology to bear in creating a model for the development of artificial intelligence. This is a freaking amazing display of interdisciplinarity coming together.
Simon wanted to build an artificial intelligence that was capable of having human intuition. In doing so, he discovered that intuition isn’t magic, but instead our subconscious analysis of the world around us. This informed his decision making research, which in turn changed his ideas on how to create artificial intelligence. He saw decision making as “search through a vast maze of possibilities, a maze that describes the environment”.
Maybe one day we’ll have artificial intelligence to maximize the decisions on what shampoos we should buy and what restaurants to stop at. Until then, we’ll have to be satisfied with being satisficers.
