Simon’s Grand Theme and the Economics of Organization (A Note for a Roundtable on Cognition, Rationality and Governance, Dedicated to the Memory of Herbert A. Simon, Journal of Management and Governance)

In a series of methodologically oriented papers, Herbert Simon (e.g., 1976, 1978, 1979) tried to convince economists to take seriously his Grand Theme of bounded rationality (henceforth, “BR”). His examples of bounded rationality and its implications quite often involved the business firm. Indeed, he sometimes took the notion of “administrative man” to be synonymous with a boundedly rational agent. Of course, Simon himself published prolifically on firms and other organizations (e.g., Simon, 1949, 1951, 1991; March and Simon, 1958). Given all this, it is surprising that  so I shall argue  economists of organization have made little use of the notion of BR, and that the arguably most successful contemporary economics research that explicitly builds on BR takes place in fields such as behavioral finance and behavioral law and economics. In the following, I argue that BR is, in contrast to the impression often conveyed (e.g., by Augier, Kreiner and March, 2000), not used in an essential way in the modern economics of organization; it is very much a background assumption that is introduced to help explaining other, more central, insights and concepts (e.g., contractual incompleteness and organizational routines). I then discuss the possible reasons for this, centering on 1) Simon’s influence and in particular the fact that he never