Herbert Simon’s Grand Theme in the Economics of Organization: “Much Cited and Little Used”

Herbert Simon was the apostle of bounded rationality. He very often illustrated bounded rationality in the context of the theory of the firm, and was, of course, a major contributor to organizational theory. However, in spite of Simon’s efforts, I argue that bounded rationality has been only incompletely absorbed in the economics of organization, is little used for substantive purposes, and mostly serves a rhetorical function, and that part of the reason for this is that Simon and those who have followed his lead have failed with respect to developing a distinct, affirmative program for incorporating bounded rationality in the economics of organization. In order to substantiate these claims, I discuss and compare alternative approaches to integrating bounded rationality with the theory of economic organization. I argue that in general bounded rationality is treated “thinly,” and is actually not necessary for producing the main insights of these theories. The paper ends with speculating on how to proceed with integrating richer notions of bounded rationality with the theory of economic organization. Acknowledgements I am grateful to Mie Augier, Giovanni Dosi, Peter Earl, John Finch, Luigi Marengo, and Uskali Mäki for comments on earlier versions of the paper, and to Oliver Williamson and Henrik Lando for discussion of a central point. All errors, obscurities, etc. are solely my responsibility.