Herbert Alexander Simon

In 1978 American social scientist Herbert Simon was awarded the Nobel Prize in economics for his "pioneering research into the decision-making process within economic organizations." In a stream of articles, Simon, who trained as a political scientist, questioned the mainstream economists' view of economic man as a lightning-quick calculator of costs and benefits. Simon's proposed alternative view was of people's rationality as "bounded." Because getting information about alternatives is costly, and because the consequences of many possible decisions cannot be known anyway, argued Simon, people cannot act the way economists assume they act. Instead of maximizing their utility, he argued, they "satisfice." That is, they do as well as they think is possible. One way they do so is by devising rules of thumb (for example: save 10 percent of after-tax income every month) that economize on the cost of collecting information and on the cost of thinking.