Modelling Bounded Rationality in Organizations: Progress and Prospects

AbstractMuch of the formal modelling work in the organizational sciences relies on Herbert Simon's conception of bounded rationality, and it stakes a claim to drawing on behaviorally plausible assumptions about human behavior and action in organizations. The objectives of our review are threefold. First, we summarize the formal literature by “model families”—classes of models sharing the same analytical structure—to highlight sharply the behavioral assumptions being made. Specifically, we discuss model families involving (a) adaptation through search and learning by individual agents, (b) mutual adjustment of interacting agents, and (c) information aggregation in organizational decision-making. Second, we examine to what extent these models of bounded rationality in organizations are in fact consistent with the behavioral evidence in psychology and other related fields. Finally, we discuss opportunities for further research that strengthens the links between formal modelling in organizations research, and its behavioral foundations. In particular, we highlight the promise of experimental methods that translate organizational models to multiple-subject experiments in the behavioral laboratory.