Author: Herbert Simon
Chapter Title: Theories of Bounded Rationality
Book Title: Decision and Organization – McGuire, CB & Radner, R (ed.)
Publisher: Amsterdam, North-Holland Pub. Co.
Year of Publication: 1972
Number of Pages : 361
Information is the result of data processing that plays an important role for humans, because it is undeniable that humans need information every day to make decisions in all aspects of life, both in economic, social, political, and other aspects. Human information needs are increasingly easily met thanks to technology. Technological developments increasingly allow humans to access information quickly and practically. Another impact of technological developments is that everyone can easily upload or disseminate information which has an impact on the flow of information from time to time which is increasingly rapid. Information is said to be of quality if it is efficient, which means that information must be appropriate for its users and can be used to solve problems. However, the large amount of information circulating at this time, can it be accepted by humans as a whole? If so, how much information can explain the actions that are then taken by someone?
In classical works The Theory of Games and Economics Behavior, J. V Neumann & Oskar Morgenstern (1944) stated that humans act rationally when faced with uncertain situations with the aim of producing the best possible decisions. The work created by these mathematicians and economists then gave birth to what is called Expected Utility Theory (hereinafter referred to as Expected Utility). Through this theory, it can be understood that basically humans manage information with the aim of producing the best decisions, by considering the potential benefits or losses of the decisions they will choose.
In practice, the theory of Expected Utility is widely used in economic studies, including for example in analyzing the behavior of an investor in managing information in determining his investment decisions. When the person is in a confusing situation, he will search for information and process information as a basis for considering actions to maintain (hold) or sell shares (cut loss).
The use of Expected Utility then extends to various fields, including in political research. When approaching the general election period, for example, the Expected Utility theory would predict that voters act rationally by receiving all information about all candidates in order to consider which candidate to vote for.
In its development, the Expected Utility theory has received a lot of criticism. One of the arguments is that no one can get 'all the information', because the information itself has no limits. For Herbert Alexander Simon (1972) humans do not act completely rationally, because human rationality is limited by cognitive processes. Therefore, Simon proposed an alternative theory which he called Bounded Rationality Theory (hereinafter referred to as Bounded Rationality). Simon agrees that humans will naturally make decisions that they think are best, but in reality the actions they take are not entirely rational, but often involve emotional factors and psychological conditions, which cause their decisions to be irrational.
Through the theory of Bounded Reality, Simon emphasized that humans have cognitive limitations so that they are unable to manage many different, contradictory, or even confusing information alternatives, which ultimately makes it difficult to process cognitively. Therefore, humans tend to make decisions based on the information available and choose which is best for them based on previously held habits and beliefs.
No less important from the Bounded Rational theory is that often a person is faced with an imbalance or gap between expectations and reality. The reason is simple, that humans do not live in a world that runs perfectly. When faced with such a situation, the actions taken by a person are not the result of calculations based on the various information available, but rather a response that then results in satisfaction (satisfaction). When faced with so much information, humans are more comfortable limiting their rationality. The actions or attitudes that are then chosen may not produce optimal results, but can provide a sense of satisfaction.
In simple terms, the difference between the Expected Utility theory and the Bounded Rational theory lies in the role of human psychology in decision making. In Expected Utility, when a person is faced with an uncertain situation, cognitively he will consider all available information. While in Bounded Rationality, human cognition is influenced by psychological conditions so that the information behavior carried out is only sorting and selecting information that he thinks is in accordance with what he believes and what information he thinks does not risk causing emotional turmoil from him.
In economics, the theory of Bounded Rationality can be seen from how a person tends to avoid information about the shadow of an economic crisis in order to avoid stress. Meanwhile, in politics, Bounded Rationality becomes relevant especially when the flow of information is so large, especially in the era of social media like today. When presented with news or content that informs the good image of one of the candidates that is not supported, the action taken is not to miss the information to maintain his belief in the figure he supports. The concept of Bounded Rationality is not without its shortcomings. For some people, this concept is considered similar to the theory information avoidance, However, in this theory, information avoidance behavior is carried out when someone feels that they are overloaded in processing information (information overload).
However, the theory of Bounded Reality can be a reminder that even though there is a program that has been designed as well as possible with the aim of improving the quality of society, such as the financial literacy improvement program provided by the government, the program may not necessarily run according to its initial objectives, because there are other factors in the form of human behavior that avoids processing information that is not in accordance with what is believed.
In a different field, the phenomenon of the spread of buzzers or buzzers on social media can be questioned for its effectiveness using this theory. Buzzers who provide information about the good image of one of the candidates with the aim of changing the public's perspective have the potential to be ineffective in influencing someone's stance. This is because when someone is faced with information that is different from what they believe, the action they take is to avoid the information provided by the buzzer. The same thing certainly applies to those who campaign for negative opinions against a party, it will not necessarily be accepted by the public, especially people who already have a positive attitude towards the party that is the subject of the information.
Bounded Rational Theory can also be used as input to media information providers to present information to the public without exceeding or reducing the content of the information. Because information that is displayed excessively will have an impact on the act of avoiding information.
REFERENCE
Simon, HA, Theories of Bounded Rationality, on McGuire, CB & Radner, R (ed.), (1972), Decision and Organization, Amsterdam: North Holland Publishing Company