Decision Making

Apporach :
Herbert Simon
Herbert Simon
Herbert A. Simon was born in Milwaukee,
Wisconsin, on June 15, 1916.

Nobel Prize in Economics: 1978, for research

on decision-making in economic organizations

Legacy: Major influence on management theory,

economics, psychology, and AI development.

Fields: Economics, Political Science, Cognitive

Psychology, Computer Science, Artificial
Intelligence
Table of contents
01 Hebert Simon
Dive into the contribution of Simon.

02 Decision Making
Dive into the Stages of Decision Making.

03 Bounded Rationality
Understanding the concept and its various reasons..

04 Criticism
Various criticisms of Social Scientist like Cherster Bernad,
James McCamy, etc.
Introduction
Herbert Simon's decision-making Simon also distinguished between
approach is a fundamental theory in programmed (routine) and non-
organizational behavior and programmed (complex) decisions.
management, introducing the concept of Central to his theory is the idea that,
bounded rationality. Simon challenged rather than seeking optimal
the classical notion that decision-makers solutions, individuals often
are fully rational, proposing instead that "satisfice" by choosing solutions that
individuals face cognitive and are satisfactory and sufficient, given
informational limitations when making their limited resources. This
decisions. approach marked a shift from the
traditional "Economic Man" model,
His model identifies three stages in the
which assumes perfect
decision-making process: intelligence,
rationality, to the more realistic
design, and choice, which involve
"Administrative Man" model,
recognizing the problem, developing
emphasizing practical, real-
alternatives, and selecting a course of
01
Herbert
Simon
Key Contributions :
● Bounded Rationality: Introduced the concept that human decision-making
is limited by information, time, and cognitive constraints.

● Satisficing: Proposed that individuals settle for a satisfactory solution rather

than an optimal one.

● Administrative Behavior (1947): Revolutionized organizational decision-

making theory.

● Artificial Intelligence Pioneer: Played a key role in developing early AI

programs and theories of human problem-solving.
 “A theory of administration
should be concerned with the
process of decision as well as
the process of action.”
-Herbert A. Simon
● Simon argued that both making decisions and implementing
them are equally important.

● Simon divided the decision-making concept into two key parts:

○ How decisions are made
○ The process of implementing those decisions
02
Decision
Making
What is Decision Making?
Decision making is the process of
selecting the best course of action
from various options based on
available information, preferences, and
goals.
Stages of Decision Making.
Intelligence
Stage Design Stage Choice Stage
In this initial stage, the During this phase, In the final stage, the
decision-maker identifies potential alternatives or decision-maker
and defines the problem solutions are developed. evaluates the
or opportunity. This The decision-maker alternatives and selects
involves gathering creates options that the most suitable option
relevant information and could effectively address based on the criteria
understanding the the identified problem. established during the
context. previous stages.
Programmed and Non-Programmed
decision- making
Programmed decision-making refers Non-programmed decision-making
to routine decisions that are made based involves unique and complex decisions
on established guidelines, rules, or that arise in response to new or
procedures. These decisions often occur unforeseen circumstances where no
in repetitive situations where the standard procedures exist. These
outcomes are predictable. Because they decisions require a greater degree of
follow clear instructions, programmed judgement, creativity, and analysis,
decisions tend to involve lower risks. For making them more time-consuming and
example, reordering inventory when higher risk. An example of non-
stock levels drop is a programmed programmed decision-making would be
decision that follows a specific procedure deciding to enter a new market or
to ensure that supplies are maintained addressing a crisis situation, as these
without disruption. scenarios often require tailored solutions
03
Bounded
Rationality
Bounded rationality is a concept introduced by Herbert Simon, which
suggests that the cognitive limitations of decision-makers constrain their ability
to make perfectly rational decisions. Unlike the classical economic model that
assumes individuals are fully rational and possess all necessary information,
bounded rationality recognizes that people often operate under constraints
such as limited information, time pressures, and cognitive limitations.
● Bounded Rationality is also known as “Limited Rationality.”
● Bounded Rationality is a principal according to which a practical decision
maker takes satisficing decision.
Satisfy + Suffice = Satisficing

● Descion may not be the best or maximizing but satisfying and sufficing;
out of all the alternatives available, the better one and not the best one is
chosen.
Administrative Man Economic Man
The "administrative man," introduced The "economic man" is an idealised
by Simon, reflects a realistic decision- decision-maker who behaves fully
maker who operates under bounded rationally, maximizing utility with
rationality. Instead of maximizing complete information and stable
utility, the administrative man seeks preferences. In the context of
satisfactory results, making "good bounded rationality, this model is
enough" decisions given cognitive unrealistic, as it assumes decision-
and informational constraints. makers have access to all
information and evaluate every
option to achieve the best outcome.
● Simon argued that there can never be a "one best course of action," as
classical theorists suggest, because in reality, administrators never have
complete information or knowledge. There will always be a better option they
are unaware of.
● The decision is based on the principle of bounded rationality, acknowledging
the limits of human capacity in solving complex problems.
● The administrative man makes decisions through "satisficing," opting for
choices that are satisfying and sufficient, rather than maximizing or finding the
best possible option with limited knowledge.
Reasons For Bounded Rationality
● Inadequate information as well as limited capacity to analyse available
information.
● Time and cost constraints.
● Personal factors of the decision maker.
● Alternatives cannot always be ranked in an ordered preference.
● The decision maker may not be aware of all possible alternatives available
and there consequences.
● Dynamic rather than static nature of organisational objectives.
● Organisational factors like procedures, rules, and channels of communication,
etc.
● Lack of communication
Simon says that the ratioality in organisational decisions could be
improved using the following tools :

➢ Promoting high degrees of standardisation.

➢ Applying scientific tools in the process of decision making.
➢ Having new members with the knowledge the organisation did not possess
before.
➢ Creating a wider base of knowledge so that rationality could be improved in
problem solving.
04
Criticism
1. Chester Barnard commented that Simon was trying to produce physics and at
the same time trying to solve the riddle of the universe. He also made his
criticism on four aspects viz., it was inconsistent in its use of the terms
rational and efficient, did not take into account the enormous amount of
uncertainty involved in most decisions, did not pay sufficient attention to the
processes of communication within organizations and did not take a politically
neutral stance.
2. Nortan E. Long criticizes the value-free science of administration stated by
Simon, which may lead to the unintended and logically unwarranted result of
reviving the policy-administration dichotomy in new verbiage.
3. Chris Argyris opines that Simon insisting on rationality has not recognized the
role of intuition, tradition, and faith in decision-making. Simon’s theory
focuses on status quo ante.
4. James McCamy felt that in Simon’s analysis, individual disappears into the
organization and that emotion vanishes in a puff of reason.
● Simon’s work emphasises factual judgements over values, which risks
reducing public administration to mechanical and routine practices. His fact-
based administrative theory is considered more applicable to business
administration than to public administration. Additionally, his decision-making
approach is criticized for being overly abstract, formalistic, and functionalistic,
neglecting personal motivations and emotions in the process.
● Simon has given more importance to decision-making processes, but has
neglected the social, political, economic, and cultural factors influencing the
administrative decision-making and behaviour.
● Simon’s study of decision-making incorporates and makes use of the logical
Positivists’ distinction between facts and values. His approach has been
attacked as reviving in a new guise the discredited politics-administration
dichotomy.
● imon’s concept of efficiency was criticised for the term equating it with
economy, and others objected to the use of the term on the ground that it
leads to a mechanical concept of administration and to an inconsistent
relationship between means and ends.
Thank You…

Submitted By Amal Hussain