A Behavioural Model of Rational Choice
Herbert A.Simon. 1955. (View Paper → )
Traditional economic theory postulates an "economic man," who, in the course of being "economic" is also "rational." This man is assumed to have knowledge of the relevant aspects of his environment which, if not absolutely complete, is at least impressively clear and voluminous. He is assumed also to have a well-organized and stable system of preferences. He has a skill in computation that enables him to calculate, for the alternative courses of action that are available to him, which of these will permit him to reach the highest attainable point on his preference scale.
This paper introduces the concept of bounded rationality (even though the author uses the phrase limited rationality). This paper highlighted that arguing about what’s the most rational way to respond is somewhat academic, as that’s not how people behave. This paper therefore paved the way for behavioural economics. 2 years later the concept of bounded rationality would catch light.