Herbert Alexander Simon Biography - Nobel Prize Winner (1978)


Herbert Alexander Simon (June 15, 1916 – February 9, 2001) was an American researcher in the fields of cognitive psychology, computer science, public administration, economic sociology, and philosophy (sometimes described as a polymath).

He was awarded the ACM's A.M. Turing Award along with Allen Newell in 1975 for making "basic contributions to artificial intelligence, the psychology of human cognition, and list processing." In 1978 he was awarded the Nobel Memorial Prize in Economics "for his pioneering research into the decision-making process within economic organizations". He also received National Medal of Science in 1986. He coined the terms bounded rationality and satisficing.

Herbert Alexander Simon was born in Milwaukee, Wisconsin on June 15, 1916. His father was an electrical engineer who had come to the United States from Germany in 1903 after earning his engineering diploma at the Technische Hochschule of Darmstadt. His father was also an inventor and designer of electrical control gear, and later in life, a patent attorney. Simon’s mother was an accomplished pianist and a third generation American. Her family had immigrated from Prague and Köln. His European ancestors had been piano builders, goldsmiths, and vintners.

Herbert Simon was educated as a child in the public school system in Milwaukee where he developed an interest in science. He found schoolwork to be interesting but rather easy. Unlike many children, Simon was exposed to the idea that human behavior could be studied scientifically at a relatively young age due to the influence of his mother’s younger brother, Harold Merkel, who had studied economics at the University of Wisconsin under John R. Commons. Through his uncle’s books on economics and psychology, Simon discovered the social sciences.

Among his earliest influences, Simon has cited Richard Ely’s economics textbook, Norman Angell’s The Great Illusion, and Henry George’s Progress and Poverty. In 1933, Simon entered the University of Chicago, and following those early influences, he studied the social sciences and mathematics. His most important mentor at the University was Henry Schultz who was an econometrician and mathematical economist. Eventually his studies led him to the field of organizational decision making which would become the subject of his doctoral dissertation.

From 1939 to 1942, Simon acted as director of a research group at the University of California, Berkeley. When the group’s grant was exhausted, he took a position in political science at the Illinois Institute of Technology. Back in Chicago, he began participating in the seminars held by the staff of the Cowles Commission who at that time included Jacob Marschak and Tjalling Koopmans. He thus began a more in-depth study of economics in the area of institutionalism. Marschak brought Simon in to assist in the study he was currently undertaking with Sam Schurr of the “prospective economic effects of atomic energy”.

From 1950 to 1955, Simon studied mathematical economics and during this time, together with David Hawkins, discovered and proved the Hawkins-Simon theorem on the “conditions for the existence of positive solution vectors for input-output matrices." He also developed theorems on near-decomposability and aggregation. Having begun to apply these theorems to organizations, Simon determined around 1954 that the best way to study problem-solving was to simulate it with computer programs, which led to his interest in computer simulation of human cognition.

Simon was a pioneer in the field of artificial intelligence, creating with Allen Newell the Logic Theory Machine (1956) and the General Problem Solver (GPS) (1957) programs. GPS was possibly the first method of separating problem solving strategy from information about particular problems. Both programs were developed using the Information Processing Language (IPL) (1956) developed by Newell, Cliff Shaw and Simon. Donald Knuth mentions (in Volume 1 of The Art of Computer Programming) the development of list processing in IPL with the linked list originally called "NSS memory" for its inventors.

Simon also collaborated with James G. March on several works in organization theory.

With Allen Newell, Simon developed a theory for the simulation of human problem solving behavior using production rules (Allen Newell and Herbert A. Simon, Human Problem Solving, 1972). The study of human problem solving required new kinds of human measurements and Simon, Newell, and colleagues helped to develop the experimental technique of verbal protocol analysis (K. A. Ericsson and H. A. Simon, Protocol Analysis: Verbal Reports as Data, 1993). Simon was interested in the role of knowledge in expertise. He said that to become an expert required about 10 years of experience and he and colleagues estimated that expertise was the result of learning roughly 50,000 chunks of information. A chess expert was said to have learned about 50,000 chunks or chess position patterns. (Chase and Simon. Perception in Chess. Cognitive Psychology Volume 4, 1973.)

He was awarded the ACM's A.M. Turing Award along with Allen Newell in 1975. "In joint scientific efforts extending over twenty years, initially in collaboration with J. C. (Cliff) Shaw at the RAND Corporation, and subsequentially with numerous faculty and student colleagues at Carnegie Mellon University, they have made basic contributions to artificial intelligence, the psychology of human cognition, and list processing."

While living in Pittsburgh, PA, he advised the citizenry on various issues including the use of public funds to build stadiums and the method of raising tax revenue. Simon emphasized the usefulness of the land tax, reflecting the early influence of Henry George on his economic thought.

Contributions to Economic Thought
Herbert Simon has been credited for revolutionary changes in microeconomics. He is responsible for the concept of organizational decision-making as it is known today. He was also the first to discuss this concept in terms of uncertainty; i.e. it is impossible to have perfect and complete information at any given time to make a decision. While this notion was not entirely new, Simon is best known for its origination. It was in this area that he was awarded the Nobel Prize in 1978.

At the Cowles Commission, Simon’s main goal was to link economic theory to mathematics and statistics. His main contributions were to the fields of general equilibrium and econometrics. He was greatly influenced by the marginalist debate that began in the 1930s. The popular work of the time argued that it was not empirically apparent that entrepreneurs needed to follow the marginalist principles of profit-maximization/cost-minimization in running organizations. The argument went on to note that profit-maximization was not accomplished, in part, because of the lack of complete information. In decision-making, Simon believed that agents face uncertainty about the future and costs in acquiring information in the present. These factors limit the extent to which agents can make a fully rational decision, thus they possess only “bounded rationality” and must make decisions by “satisficing,” or choosing that which might not be optimal but which will make them happy enough.

Simon was known for his research on industrial organization. He determined that the internal organization of firms and the external business decisions thereof did not conform to the Neoclassical theories of “rational” decision-making. Simon wrote myriad articles on the topic over the course of his life mainly focusing on the issue of decision-making within the behavior of what he termed “bounded rationality.” “Rational behavior, in economics, means that individuals maximize some target function under the constraints they face (e.g., their utility function) in pursuit of their self-interest. This is reflected in the theory of (subjective) expected utility. The term bounded rationality is used to designate rational choice that takes into account the cognitive limitations of both knowledge and cognitive capacity. Bounded rationality is a central theme in behavioral economics. It is concerned with the ways in which the actual decision-making process influences decisions. Theories of bounded rationality relax one or more assumptions of standard expected utility theory”.

Simon determined that the best way to study these areas was through computer simulation modeling. As such, he developed an interest in computer science. Herbert Simon's main interests in computer science were in artificial intelligence, human-computer interaction, principles of the organization of humans and machines is information processing systems, the use of computers to study (by modeling) philosophical problems of the nature of intelligence and of epistemology, and the social implications of computer technology. Some of Simon's economic research was directed toward understanding technological change in general and the information processing revolution in particular.

Administrative Behavior1was Herbert Simon’s doctoral dissertation and his first book. It served as the foundation for his life's work. The centerpiece of this book is the behavioral and cognitive processes of making rational human choices, that is, decisions. An operational administrative decision should be correct and efficient, and it must be practical to implement with a set of coordinated means.

Any decision involves a choice selected from a number of alternatives, directed toward an organizational goal or subgoal. Realistic options will have real consequences consisting of personnel actions or non-actions modified by environmental facts and values. In actual practice, some of the alternatives may be conscious or unconscious; some of the consequences may be unintended as well as intended; and some of the means and ends may be imperfectly differentiated, incompletely related, or poorly detailed.

The task of rational decision making is to select the alternative that results in the more preferred set of all the possible consequences. This task can be divided into three required steps: (1) the identification and listing of all the alternatives; (2) the determination of all the consequences resulting from each of the alternatives; and (3) the comparison of the accuracy and efficiency of each of these sets of consequences.2 Any given individual or organization attempting to implement this model in a real situation would be unable to comply with the three requirements. It is highly improbable that one could know all the alternatives, or all the consequences that follow each alternative.

The question here is: given the inevitable limits on rational decision making, what other techniques or behavioral processes can a person or organization bring to bear to achieve approximately the best result? Simon writes:“The human being striving for rationality and restricted within the limits of his knowledge has developed some working procedures that partially overcome these difficulties. These procedures consist in assuming that he can isolate from the rest of the world a closed system containing a limited number of variables and a limited range of consequences.”3

Administrative Behavior, as a text, addresses a wide range of human behaviors, cognitive abilities, management techniques, personnel policies, training goals and procedures, specialized roles, criteria for evaluation of accuracy and efficiency, and all of the ramifications of communication processes. Simon is particularly interested in how these factors directly and indirectly influence the making of decisions.

Weaving in and out of the practical functioning of all of these organizational factors are two universal elements of human social behavior that Simon addresses in Chapter VII—The Role of Authority4, and in Chapter X—Loyalities, and Organizational Identification.5

Authority is a well studied, primary mark of organizational behavior, and is straightforwardly defined in the organizational context as the ability and right of an individual of higher rank to determine the decision of an individual of lower rank. The actions, attitudes, and relationships of the dominant and subordinate individuals constitute components of role behavior that can vary widely in form, style, and content, but do not vary in the expectation of obedience by the one of superior status, and willingness to obey from the subordinate. Authority is highly influential on the formal structure of the organization, including patterns of communication, sanctions, and rewards, as well as on the establishment of goals, objectives, and values of the organization.

Decisions can be complex admixtures of facts and values. Information about facts, especially empirically proven facts or facts derived from specialized experience, are more easily transmitted in the exercise of authority than are the expressions of values. Simon is primarily interested in seeking identification of the individual employee with the organizational goals and values. Following Lasswell6 he states that “a person identifies himself with a group when, in making a decision, he evaluates the several alternatives of choice in terms of their consequences for the specified group”7. A person may identify himself with any number of social, geographic, economic, racial, religious, familial, educational, gender, political, and sports groups. Indeed, the number and variety are unlimited. The fundamental problem for organizations is to recognize that personal and group identifications can either facilitate or obstruct correct decision making for the organization. A specific organization has to deliberately determine and specify in appropriate detail and clear language its own goals, objectives, means, ends, and values.

Chester Barnard pointed out that “the decisions that an individual makes as a member of an organization are quite distinct from his personal decisions”8. Personal choices may determine whether an individual joins a particular organization, and continue to be made in his or her extra–organizational private life. But, as a member of an organization, that individual makes decisions not in relationship to personal needs and results, but in an impersonal sense as part of the organizational intent, purpose, and effect. Organizational inducements, rewards, and sanctions are all designed to form, strengthen, and maintain this identification.

The correctness of decisions is measured by two major criteria: (1) adequacy of achieving the desired objective; and (2) the efficiency with which the result was obtained. Many members of the organization may focus on adequacy, but the overall administrative management must pay particular attention to the efficiency with which the desired result was obtained.

Simon's contributions to research in the area of decision-making have become increasingly mainstream in the business community thanks to the growth of management consulting. Simon's decision-making steps of Intelligence, Design, Choice, and Review are the basis of the work of Inferential Focus.

Akerlof, George A.
Allais, Maurice
Arrow, Kenneth J.
Aumann, Robert J.
Becker, Gary S.
Buchanan, James M., Jr.
Coase, Ronald H.
Debreu, Gerard
Engle, Robert F.
Fogel, Robert W.
Friedman, Milton
Frisch, Ragnar
Granger, Clive W. J.
Haavelmo, Trygve
Harsanyi, John C.
Heckman, James J.
Hayek, Friedrich August Von
Hicks, Sir John R.
Kahneman, Daniel
Kantorovich, Leonid Vitaliyevich
Klein, Lawrence R.
Koopmans, Tjalling C.
Kuznets, Simon
Kydland, Finn E.
Leontief, Wassily
Lewis, Sir Arthur
Lucas, Robert
Markowitz, Harry M.
McFadden, Daniel L.
Meade, James E.
Merton, Robert C.
Miller, Merton M.
Mirrlees, James A.
Modigliani, Franco
Mundell, Robert A.
Myrdal, Gunnar
Nash, John F.
North, Douglass C.
Ohlin, Bertil
Prescott, Edward C.
Samuelson, Paul A.
Schelling, Thomas C.
Scholes, Myron S.
Schultz, Theodore W.
Selten, Reinhard
Sen, Amartya
Sharpe, William F.
Simon, Herbert A.
Smith, Vernon L.
Solow, Robert M.
Spence, A. Michael
Stigler, George J.
Stiglitz, Joseph E.
Stone, Sir Richard
Tinbergen, Jan
Tobin, James
Vickrey, William

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