Matheus Albergaria de Magalhães - Apresentação para a Disciplina "Economia das Organizações II" (Professora Maria Sylvia Saes). Programa de Pós-Graduação em Administração da Universidade de São Paulo (PPGA-USP), Sáo Paulo, 25 de Março de 201e.

1. Motivation Argument Conclusions References
Discussion
A Behavioral Model of Rational Choice
by Herbert A. Simon
Quarterly Journal of Economics, v.49, Feb.1955
Matheus Albergaria de Magalhães
Economia das Organizações II
Universidade de São Paulo (USP)
March 25th, 2015
Matheus Albergaria de Magalhães
A Behavioral Model of Rational Choice (Simon 1955)

2. Motivation Argument Conclusions References
SECTIONS
Motivation
Argument
Conclusions
References
Matheus Albergaria de Magalhães
A Behavioral Model of Rational Choice (Simon 1955)

3. Motivation Argument Conclusions References
MOTIVATION
Traditional theories postulate an "economic man".
Characteristics:
1. Complete knowledge of relevant aspects of his environment.
2. Well-organized and stable system of preferences.
3. Excellent computation skills.
Matheus Albergaria de Magalhães
A Behavioral Model of Rational Choice (Simon 1955)

4. Motivation Argument Conclusions References
MOTIVATION
Simon’s (1955) main goals:
Replace the definition of global rationality of the "economic
man".
New rational behavior must be compatible with
information access and computational capacities possessed by
organisms (including man).
Matheus Albergaria de Magalhães
A Behavioral Model of Rational Choice (Simon 1955)

5. Motivation Argument Conclusions References
ARGUMENT
Rational behavior require the following elements:
1. A set of behavior alternatives (A).
2. A subset of behavior alternatives that the organism
"considers"or "perceives" ( ˙A ⊂ A).
3. Possible states of affairs, or outcomes of choice (S).
4. A payoff function (V(s)) defined ∀s∈S.
5. Information as to wich outomes in S will occur if a
particular alternative a in A (or ˙A) occurs.
6. Information as to the probability that a particular outcome
will ensue if a particular behavior alternative is chosen.
Matheus Albergaria de Magalhães
A Behavioral Model of Rational Choice (Simon 1955)

6. Motivation Argument Conclusions References
Example: Prisoners’ Dilemma
Player 2
Confess Don’t Confess
Player 1 Confess -5,-5 -1,-10
Don’t Confess -10,-1 -2,-2
Matheus Albergaria de Magalhães
A Behavioral Model of Rational Choice (Simon 1955)

7. Motivation Argument Conclusions References
"Classical" Concepts of Rationality:
1. Max-min Rule:
ˆV(ˆa) = Mins∈Sa V(s) = Maxa∈AMins∈Sa V(s)
2. Probabilistic Rule:
ˆV(ˆa) =
s∈Sa
V(s)Pˆa(s) = Maxa∈A
s∈Sa
V(s)Pˆa(s)
3. Certainty Rule:
ˆV(ˆa) = V(Sˆa) = Maxa∈AV(Sa)
Matheus Albergaria de Magalhães
A Behavioral Model of Rational Choice (Simon 1955)

8. Motivation Argument Conclusions References
ARGUMENT
The above rationality concepts make severe demands upon
the choosing organism:
The organism must be able to attach definite payoffs to each
possible outcome.
It must have the ability to specify the exact nature of the
outcomes.
Payoffs must be completely ordered.
Either outcomes of particular alternatives must be known
with certainty, or at least it must be possible to attach
definite probabilities to them.
Matheus Albergaria de Magalhães
A Behavioral Model of Rational Choice (Simon 1955)

9. Motivation Argument Conclusions References
ARGUMENT
Empirical Proposition: there is a complete lack of evidence that,
in actual human choice situations of any complexity, such
computations are in fact performed.
Basic Procedure: introduce some modifications that appear to
correspond to observed behavior processes in humans, and that
lead to substantial computational simplifications in the making of
a choice.
Matheus Albergaria de Magalhães
A Behavioral Model of Rational Choice (Simon 1955)

10. Motivation Argument Conclusions References
ARGUMENT
Figure 1
"Simple" Payoff Functions
Source: Simon (1955, p.105).
Matheus Albergaria de Magalhães
A Behavioral Model of Rational Choice (Simon 1955)

11. Motivation Argument Conclusions References
ARGUMENT
Figure2
Partial Ordering of Payoffs
Source: Simon (1955, p.109).
Matheus Albergaria de Magalhães
A Behavioral Model of Rational Choice (Simon 1955)

12. Motivation Argument Conclusions References
ARGUMENT
Dynamics:
1. Aspiration level at time t depends upon the previous history
of the system.
2. Payoffs in a particular trial may depend not only on the
alternative chosen in that trial but also on alternatives
chosen in previous trials.
3. The consequences that the organism experiences may
change the payoff function.
4. One choice method may be to select a particular
alternative and experience its consequences.
Matheus Albergaria de Magalhães
A Behavioral Model of Rational Choice (Simon 1955)

13. Motivation Argument Conclusions References
CONCLUSIONS
Main goal of the paper: to construct definitions of rational
choice which were modeled more closely upon actual decision
processes by organisms.
Broader goal: provide some material for the construction of a
theory of the behavior of a human individual or of groups of
individuals who are making decisions in an organizational
context.
Matheus Albergaria de Magalhães
A Behavioral Model of Rational Choice (Simon 1955)

14. Motivation Argument Conclusions References
CONCLUSIONS
Impressions:
Further attempts to refine the hypothesis and related
concepts (Simon 1976).
Bounded rationality seemed to have a major impact on
Institutional Economics (North 1990) and other social
sciences (Jones 1999)..
..but its adoption among mainstream economists was still
limited (Simon 1978).
Challenge: integrate this rationality concept in standard
models of firm and organizational behavior.
Matheus Albergaria de Magalhães
A Behavioral Model of Rational Choice (Simon 1955)

15. Motivation Argument Conclusions References
REFERENCES
JONES, B.D. (1999). Bounded rationality. Annual Review of Political Science, 2,
297-321.
NORTH, D. (1990). Institutions, institutional change and economic performance.
Cambridge: Cambridge University, 3-35.
SIMON, H.A. (1955). A behavioral model of rational choice. Quarterly Journal
of Economics, 49, 99-118.
SIMON, H.A. (1976). From substantive to procedural rationality. In S.J. Latsis
(Ed.), Method and Appraisal in Economics (pp.129-148). Cambridge: Cambridge
University.
SIMON, H.A. (1978). Rational decision-making in business organizations. Nobel
Prize Lecture.
Matheus Albergaria de Magalhães
A Behavioral Model of Rational Choice (Simon 1955)

16. Motivation Argument Conclusions References
Thank You
Matheus Albergaria de Magalhães
matheus.albergaria.magalhaes@gmail.com
http://www.sites.google.com/site/malbergariademagalhaes
Matheus Albergaria de Magalhães
A Behavioral Model of Rational Choice (Simon 1955)