Reconstructing a Computable and Computationally Complex Theoretic Path Towards Simon's Behavioural Economics

Ying-Fang Kao and K. Vela Velupillai

No 1222, ASSRU Discussion Papers from ASSRU - Algorithmic Social Science Research Unit

Abstract: This paper aims to interpret and formalize Herbert Simon's notions of bounded rationality, satisficing and heuristics in terms of computability theory and computational complexity theory. Simon's theory of human problem solving is analysed in the light of Turing's work on Solvable and Unsolvable Problems. It is suggested here that bounded rationality results from the fact that the deliberations required for searching computationally complex spaces exceed the actual complexity that human beings can handle. The immediate consequence is that satisficing becomes the general criterion of decision makers and heuristics are the procedures used for achieving their goals. In such decision problems, it is demonstrated that bounded rationality and satisficing are more general than Olympian rationality and optimization, respectively, and not the other way about.

Keywords: Bounded Rationality; Satisficing; Heuristics; Computability; Computational Complexity (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-cbe, nep-hme and nep-hpe
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