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The aim of this article is to explain the concept of bounded rationality introduced by American political scientist Herbert Simon. This article also gives brief explanations about the decision rules that might be used by local government decisionmakers to manage time, complexity, and uncertainty in their environment.
Bounded rationality explains why human beings faced with immense complexity and cognitive limitations deal with their decision-making tasks by constructing simple models of reality and employing heuristics (trial and error). The assumptions and propositions that underlie this theory of decision making are attributed primarily to Simon. One of the theory's most crucial premises is presented in the following excerpt (Simon 1957):
"The capacity of the human mind for formulating and solving complex problems is very small compared to the size of the problems whose solution is required for objectively rational behavior in the real world."
In this statement, Simon presents his fundamental thesis about human decision making by contrasting it with the more classical notion of decision making used in economics. In general, economists assume that decisionmakers are rational in all situations.
In contrast, Simon argues that the ability of humans to gather, comprehend, and retrieve information from memory and make inferences is limited for a number of reasons. First, their environments are exceedingly complex. Second, their mental capabilities are extremely limited in comparison with the demands of a complex environment.
And third, they are constrained by such finite resources as time and money from attempting to fully understand environmental complexities. As a result of these limitations, decisionmakers make their decisions under conditions of extreme uncertainty most the time; and they make decisions only in an intendedly rational manner.
Using these assumptions, Simon and his colleagues show how humans make decisions despite complexity and uncertainty. Instead of becoming frustrated by these seemingly overwhelming problems, humans develop ways of coping with them. Simon argues that these methods result directly from the decisionmaker's ability to adapt to a complex and uncertain environment.
In its most basic form, a decision is made from a set of premises. These premises can be divided into two types: value premises...