# Herbert A. Simon: Nobel Economist & AI Pioneer in Bounded Rationality

## Who Was Herbert A. Simon?

Herbert A. Simon was a prominent figure in economics and artificial intelligence. He won the [Nobel Memorial Prize in Economic Sciences](https://www.investopedia.com/terms/n/nobel-memorial-prize-in-economic-sciences.asp) in 1978 for his groundbreaking theory of bounded rationality, which showed that people make decisions with limited information instead of perfect logic. Simon spent much of his career at Carnegie Mellon University, where he was also a pioneer in artificial intelligence (AI) research. He published many influential works over his lifetime and received the A.M. Turing Award for his major contributions to computer science.

### Key Takeaways

*   Herbert A. Simon was renowned for his theory of bounded rationality, influencing modern business economics and administrative research.  
    
*   He demonstrated that decision-making often involves finding satisfactory solutions rather than fully rational, optimal choices.  
    
*   Simon's work in artificial intelligence included developing a computer program that could prove mathematical theorems, pioneering AI research.  
    
*   He won both the Nobel Memorial Prize in Economics and the A.M. Turing Award for his groundbreaking contributions to economics and computer science.  
    
*   Bounded rationality is foundational to behavioral economics, challenging classical economic assumptions about fully rational human behavior.

## Understanding Herbert A. Simon's Bounded Rationality Theory

Herbert A. Simon and his theories on economic decision-making challenged classical economic thinking, including the ideas of [rational behavior](https://www.investopedia.com/terms/r/rational-behavior.asp) and the atomistic individualism of [economic man](https://www.investopedia.com/terms/e/economic-man.asp). Rather than subscribing to the idea that economic behavior was rational and based upon all available information to secure the best possible outcome for an individual ("optimizing"), Simon believed decision-making was about achieving outcomes that were "good enough" for the individual based on their limited information and balancing the interests of others. Simon called this "[satisficing](https://www.investopedia.com/terms/s/satisficing.asp)." His term was a combination of the words "satisfy" and "suffice."

According to Simon, because humans cannot possibly obtain or process all the information needed to make fully rational decisions, they instead seek to use the information they do have to produce a satisfactory result, or one that is "good enough." He described humans as being bounded by their own "cognitive limits."

In addition to cognitive limits, Simon also wrote about how personal relations and social organizations constrain decision-making. This means that individuals often do not make decisions considering only their own interests or the individual's [utility](https://www.investopedia.com/terms/u/utility.asp) maximization, but must negotiate, exert power over, or otherwise navigate the interests of others and the rules of the institutional setting within which they operate.

These cognitive and social limits, which shape decision-making, are known as the theory of bounded rationality. Under bounded rationality, decision-makers must settle for finding satisfactory solutions to the problem or problems in front of them, while being mindful of how other decision-makers in the company are solving their own problems. Within these bounds, decision-making can still be rational in that it consists of comparing the relative costs, benefits, and risks to achieve a desired result. Bounded rationality would also go on to become a foundational element in [behavioral economics](https://www.investopedia.com/terms/b/behavioraleconomics.asp), which at times also questions whether human decision-making is really rational at all.

When the Royal Swedish Academy of Sciences awarded Simon the Nobel Memorial Prize in Economics for his work in this area, it noted that much of modern business economics and administrative research are based on his ideas. Simon replaced the concept of the all-knowing, profit-maximizing entrepreneur with the idea of cooperating decision-makers within a company who face informational, personal, and social limitations.

## Herbert A. Simon's Impact on Artificial Intelligence

Herbert A. Simon is considered a pioneer in the foundations of artificial intelligence. In the mid-1950s, Simon and Allen Newell of the Rand Corporation attempted to simulate human decision-making on computers. In 1955, they wrote a computer program that was able to prove mathematical theorems. The pair called it their "machine that thinks."

## The Bottom Line

Herbert A. Simon made many contributions to economics and AI. He introduced the idea of bounded rationality, and his concept of satisficing challenged traditional economic theories and reshaped administrative thought. His work earned him top honors, including the Nobel Memorial Prize in Economic Sciences and the Turing Award, highlighting his wide impact. He also pioneered AI research, creating programs that could prove mathematical theorems. His ideas on decision-making and AI continue to influence economics, business, and technology.  

> **Article Sources**
>
> 1.  Association for Computing Machinery. "[Herbert ('Herb') Alexander Simon](https://amturing.acm.org/award_winners/simon_1031467.cfm)."
>     
> 2.  The Stanford Encyclopedia of Philosophy. "[Bounded Rationality](https://plato.stanford.edu/entries/bounded-rationality/)."
>     
> 3.  The Nobel Prize. "[Studies of Decision-Making Lead to Prize in Economics](https://www.nobelprize.org/prizes/economic-sciences/1978/press-release/)."