BOUNDED RATIONALITY 299 for those outcomes.[The analysis presented here is further developed in my Traces of Eve:Adaptive Behavior and Its Limits in Political and Economic In- stitutions (manuscript in preparation).] BOUNDED RATIONALITY:BIRTH AND DEVELOPMENT Ajuo Bounded rationality is a school of thought about decision making that de- asn veloped from dissatisfaction with the "comprehensively rational"economic and decision theory models of choice.Those models assume that preferences JO'SMOl euosjad are defined over outcomes,that those outcomes are known and fixed,and that decision makers maximize their net benefits,or utilities,by choosing the 2 alternative that yields the highest level of benefits(discounted by costs).The subjective expected-utility variant of rational choice integrates risk and uncer- Aorenuue's]eumofre woy 9086000 tainty into the model by associating a probability distribution,estimated by the decision maker,with outcomes.The decision maker maximizes expected utility.Choices among competing goals are handled by indifference curves- generally postulated to be smooth(twice differentiable)-that specify substi- tutability among goals. A major implication of the approach is that behavior is determined by the popeojuo mix of incentives facing the decision maker.A second implication is that adjustment to these incentives is instantaneous;true maximizers have no learn- ing curves. Like comprehensive rationality,bounded rationality assumes that actors 125-76 are goal-oriented,but bounded rationality takes into account the cognitive limitations of decision makers in attempting to achieve those goals.Its scien- 26661 tific approach is different;rather than making assumptions about decision making and modeling the implications mathematically for aggregate behavior (as in markets or legislatures),bounded rationality adopts an explicitly behav- ioral stance.The behavior of decision makers must be examined,whether in the laboratory or in the field. The Birth of Bounded Rationality ALISHAINO Simon(1999;see also Simon 1996a)reminds political scientists that the no- tion of bounded rationality and many ofits ramifications originated in political science.Over his long career,Simon made major contributions not only to 3 political science (as the founder of the behavioral study of organizations)but also to economics(as a Nobelist),psychology(as a founding father of cogni- tive psychology),and computer science(as an initiator of the field of artificial intelligence). In the 1940s and 1950s,Simon developed a model of choice intended as a challenge to the comprehensive rationality assumptions used in economics.for those outcomes. [The analysis presented here is further developed in my Traces of Eve: Adaptive Behavior and Its Limits in Political and Economic In￾stitutions (manuscript in preparation).] BOUNDED RATIONALITY: BIRTH AND DEVELOPMENT Bounded rationality is a school of thought about decision making that de￾veloped from dissatisfaction with the “comprehensively rational” economic and decision theory models of choice. Those models assume that preferences are defined over outcomes, that those outcomes are known and fixed, and that decision makers maximize their net benefits, or utilities, by choosing the alternative that yields the highest level of benefits (discounted by costs). The subjective expected-utility variant of rational choice integrates risk and uncer￾tainty into the model by associating a probability distribution, estimated by the decision maker, with outcomes. The decision maker maximizes expected utility. Choices among competing goals are handled by indifference curves— generally postulated to be smooth (twice differentiable)—that specify substi￾tutability among goals. A major implication of the approach is that behavior is determined by the mix of incentives facing the decision maker. A second implication is that adjustment to these incentives is instantaneous; true maximizers have no learn￾ing curves. Like comprehensive rationality, bounded rationality assumes that actors are goal-oriented, but bounded rationality takes into account the cognitive limitations of decision makers in attempting to achieve those goals. Its scien￾tific approach is different; rather than making assumptions about decision making and modeling the implications mathematically for aggregate behavior (as in markets or legislatures), bounded rationality adopts an explicitly behav￾ioral stance. The behavior of decision makers must be examined, whether in the laboratory or in the field. The Birth of Bounded Rationality Simon (1999; see also Simon 1996a) reminds political scientists that the no￾tion of bounded rationality and many of its ramifications originated in political science. Over his long career, Simon made major contributions not only to political science (as the founder of the behavioral study of organizations) but also to economics (as a Nobelist), psychology (as a founding father of cogni￾tive psychology), and computer science (as an initiator of the field of artificial intelligence). In the 1940s and 1950s, Simon developed a model of choice intended as a challenge to the comprehensive rationality assumptions used in economics. BOUNDED RATIONALITY 299 Annu. Rev. Polit. Sci. 1999.2:297-321. Downloaded from arjournals.annualreviews.org by UNIVERSITY OF WASHINGTON - HEALTH SCIENCES LIBRARIES on 09/25/06. For personal use only