Bounded rationality 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. 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 a brief discussion of how to proceed with integrating richer notions of bounded rationality with the theory of economic organization. 2003 Published by Elsevier Science B.V. PsycINFO classification: 2340; 2360 JEL classification: D23; L22