Conventions in Herbert Simon's theory of bounded rationality

Abstract

This paper offers a reconstruction of Herbert Simon's decision theory from the conventionalist point of view. It is argued that Simon defined two types of conventions in organizational settings: the first one was specified as a set of customary rules in the workplace, the second one as a shared cognitive model of reality. This paper emphasizes the importance of that approach for economic psychology and its connections with T. Schelling's project of the reorientation of the game theory. The implication of revisiting Simon from the conventionalist viewpoint is that not only may such an approach provide a solution to coordination problems, which is psychologically reliable, but it also leads to a decision paradigm, according to which understanding problems of coordination is impossible without taking into consideration individual cognitive limits and social representations of reality. © 2009 Elsevier B.V. All rights reserved.