Routledge Handbook of Bounded Rationality

Riccardo Viale

• Publisher: Routledge
• Year: 2020
• eBook ISBN: 9781317330790
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

Herbert Simon's renowned theory of bounded rationality is principally interested in cognitive constraints and environmental factors and influences which prevent people from thinking or behaving according to formal rationality. Simon's theory has been expanded in numerous directions and taken up by various disciplines with an interest in how humans think and behave. This includes philosophy, psychology, neurocognitive sciences, economics, political science, sociology, management, and organization studies.

The Routledge Handbook of Bounded Rationality draws together an international team of leading experts to survey the recent literature and the latest developments in these related fields. The chapters feature entries on key behavioural phenomena, including reasoning, judgement, decision making, uncertainty, risk, heuristics and biases, and fast and frugal heuristics. The text also examines current ideas such as fast and slow thinking, nudge, ecological rationality, evolutionary psychology, embodied cognition, and neurophilosophy. Overall, the volume serves to provide the most complete state-of-the-art collection on bounded rationality available.

This book is essential reading for students and scholars of economics, psychology, neurocognitive sciences, political sciences, and philosophy.

1

Why bounded rationality?

Riccardo Viale

DOI: 10.4324/9781315658353-1

In the philosophy of science why-questions are a way to address the foundations of scientific explanation. For Bas van Fraassen (1980), a theory of explanation is essentially a theory of why-questions. Why-questions and their answers are individuated only relative to a context.¹ The pragmatic problem of the context determines the relevance of the answer and ultimately the choice made therein.

Daniel Dennett (2017) breaks down the sense of why-questions into two options: “How come?” and “What for?”. The former refers to the factual description, to the illustration of the physical or chemical process that explains a phenomenon. For example, wondering “Why did we witness a total eclipse of the moon on … July?” would refer to the earth’s positioning in the orbit of the sun and the moon and the shadow projected by the earth on the moon. The latter refers instead to the reasons that explain a phenomenon. For example, asking “Why did Britons vote for Brexit?” refers to “for which reason”, that is to the actual motivations – such as fear of immigration, hostility towards Brussels Eurocrats, communication errors made by the Remainers, etc. – that led the majority of Britons to vote in favour of this unexpected choice.

In some instances, a question can be answered using either of the alternatives, depending on the context of reference. Dennett asks himself the question concerning evolution by natural selection. One part of the answer may be described using the “How come?” option, that is through a description of the physico-chemical processes that led to the emergence of the first eukaryotic being. At this point, the question becomes “What for?”, that is what are the reasons that led to the selection of some species over others? The question “Why bounded rationality?” can be addressed in the same way. In this case, the order of the alternatives is reversed, compared to evolutionary selection. The first question is not about why the term was introduced, that is to say, what is the reason that in 1950 led Herbert Simon to bestow this name on a series of empirical phenomena he had observed while studying administrative organization? The first question is, “For what reason?” is human rationality non-maximizing and non-optimizing, but rather bounded, heuristic, and satisficing. The answer provided in this volume indicates that it was the capacity to better adapt to the uncertainty and complexity of the environment that led to the evolutionary selection of this type of rationality over Olympic or unbounded rationality. The second question is then, “How come?”, that is to say through which neurocognitive and corporal processes did bounded rationality emerge? This Handbook will try to answer this question by identifying the cognitive aspects that characterize the style of human decision making and analysing the neural and motor, sensorial and visceral embodiment correlates that explain the heuristic characters of bounded of rationality.

Part I Naturalizing bounded rationality

Rationality or reason holds an important role in philosophical tradition. In brief, we can distinguish two main philosophical schools of thought on rationality (Viale, 2012): the first affirms the superiority of reason compared to intellect; the second asserts the opposite. In the former, the classical philosophical tradition, reason is the strength that liberates us from prejudices, from myth, from established but false opinions, and from appearances, and which allows a universal or common criterion to be established for all areas of human conduct. In the tradition that spans from Heraclitus, Parmenides, Plato and Aristotle to St Augustine, Descartes, Spinoza, Leibniz and the Enlightenment, reason is man’s fundamental and universal guide; it is what differentiates us from animals and allows us to tell truth from falsehood, because, as Seneca states, “Reason is nothing other than a part of the divine spirit descended (or sunk) into a human body.” It is universal because it is present in all persons, who, as Descartes affirms, think differently only because they apply reason differently.

In opposition to this Olympic and universal vision of reason, we find the second position. According to this minority tradition, expressed by Neoplatonism, St Thomas, medieval scholastics, Francis Bacon and, to a large extent, Kant, reason is subject to the primacy of intellect. Intellect should be regarded as superior because it is equipped with that intuitive and immediate character that allows it to gain a direct understanding of empirical reality, unlike reason which is limited by its discursive and a priori nature. While affirming the discursive nature of both, Kant also maintained that only that of the intellect was valid since its concepts are immediately derived from experience.

Although severely criticized by Kant, the primacy of reason and its discursive nature remains the dominant position in philosophy. This discursive and linguistic character, as summarized in Aristotle’s syllogistic or in the Cartesian ideal of the chains of reasoning in geometry, leads to the formal development of the theory of rationality in the past century. The resulting logic of rationality will always maintain, as in Aristotle, the dual descriptive valence of its own procedures of reason, and normative valence in the sense of the rule for its correct use.

The philosophical tradition of rationality can be considered a subsector of the larger epistemology one. In particular, the development of the Naturalizing Epistemology programme introduced by Quine in the 1960s shaped the normative framework for the contemporary concept of bounded rationality. Let us see why (see Viale, 2013):

Among the most fundamental questions which epistemology has sought to answer are the following:

1.How ought we to arrive at our beliefs?

2.How do we arrive at our beliefs?

3.Are the processes by which we do arrive at our beliefs the ones by which we ought to arrive at our beliefs?

Traditionally, the answers to these questions were as follows: both epistemology and psychology should carry out their research independently and separately, and then, once they have answered questions 1 and 2 respectively, they will attempt to answer question 3.

For example, suppose that psychological studies were to demonstrate that people arrive at their beliefs by some kind of non-conscious mechanism that measures the coherence of new beliefs with the body of beliefs already held, and which accepts only those that cohere and rejects those that do not, this would have no bearing on the merits on the epistemological coherence theory of justification which states that one can only adopt beliefs cohering with beliefs one already has. The normative questions that epistemologists ask are completely independent of the descriptive questions psychologists ask.

However, there is another way to answer the three questions. This is the approach used by the project for naturalizing epistemology: question 1 cannot be answered independently of question 2. The question of how we actually arrive at our beliefs is therefore relevant to the question of how we ought to arrive at our beliefs.

This position is well summed up by the following passage from Quine:

Epistemology becomes as a chapter of psychology and hence of natural science. It studies a natural phenomenon, viz. a physical human subject. This human subject is accorded a certain experimentally controlled input – certain patterns of irradiation in assorted frequencies, for instance – and with a little of time the subject delivers as output a description of the three-dimensional external world and its history. The relation between the meagre input and the torrential output is a relation that we are prompted to study for somewhat the same reasons that always prompted epistemology; namely, in order to see how evidence relates to theory, and in what ways one’s theory of nature transcends any available evidence for it.

Quine, 1985, p. 24

What prompted this reversal of approach? Largely it was the failure of the foundationalist project which tried to show that there is a class of beliefs – typically beliefs about our own sensory experience – about which it is impossible to be wrong. Moreover, these beliefs were held to be sufficient to justify the rest of our beliefs. Carnap’s project was aimed at the translation, the rational reconstruction of every assertion about the world in terms of sensory data, logic and set theory.

If the project had succeeded from a “conceptual” point of view, namely, the “technical” possibility of achieving this translation, it would in any case have failed to overcome the “doctrinal” barrier, namely, the problem of preserving the content of truth within the translation. Merely by translating an assertion in terms of sensory data, logic and set theory does not mean that it can be verified by this translation. The most modest of observational generalizations will always cover more cases than those observed by the observer. Therefore, any attempt to found beliefs on immediate experience is hopeless, from a logical point of view, even if this is the simplest empirical generalization.

Also from a conceptual point of view, this translation programme produced few results. It attempted to reduce every scientific assertion to a neutral language of observational data, logic and set theory. First, an attempt was made using “direct definitions”, then with “contextual definitions”, by which sentences containing the term were translated into equivalent sentences lacking the term. Lastly, with the “reduction modules” of Carnap’s liberalized programme, hope was given up of translating a sentence into an equivalent and it ended up by explaining a new term by specifying some sentences which are implied by the sentences containing the term, and other sentences which imply sentences containing the term.

As Quine states, this minimal objective renounces the last remaining advantage of a programme of rational reconstruction, namely, the advantage of reduction by translation.

If all we hope for is a reconstruction that links science to experience in explicit ways, short of translation, then it would seem more sensible to settle for psychology. Better to discover how science is in fact developed and learned than to fabricate a fictitious history of how our ancestors introduced those terms through a succession of Carnap’s “reduction modules” (Quine, 1985, p. 21).

Does this mean that the empirical foundation of knowledge, the empirical meaning of sentences about the world, is no longer founded on solid bases? Quite the contrary. Our knowledge of the external world is based and founded precisely on the empirical meaning of language, as is actually attained in the process of each individual’s learning of language. The common meaning that we attribute to words and to sentences about the external world, namely, the basis for our possibility of communicating and understanding, and also the empirical meaning of science, rest in the last instance on the common empirical basis of the common meaning we attribute to our assertions about the world, and this empirical basis can only be described and explained by empirical psychology.

A further shift towards a naturalization of epistemology occurs at the moment when the meaning of the three questions is further examined by focusing attention on the cognitive mechanisms of rationality, the various internal processes of the cognitive elaboration of beliefs, on the processes whereby from one belief we reach a different belief, namely, on the processes of deductive and inductive reasoning and inference. This is the decision-making moment of what action to take; the assessment of assumptions and hypotheses; the following of arguments and reasoning; deciding what weight and importance to give to the evidential data; the solution of problems.²

In the programme of naturalizing epistemology, therefore, an important chapter is occupied by a study of the natural mechanisms of reasoning, judgement, and decision making which must be immune from any kind of logicist preconception and apriorism.

To sum up, a broad concept of rationality has always been linked to normativity. The realm of a priori demonstrative proof, that is, the things that people were absolutely certain about, remained the goal of epistemology and science until the beginning of the twentieth century. Scientific rationality fell into a definitive crisis with the failure of the neopositivist programme and the emergence of relativism and socio-historical reductionism or, in other words, the dominance of the context of discovery over the context of justification. Likewise, in the twentieth century, the inclusive area of epistemological rationality had its radical change with the Naturalizing Epistemology programme of Willard O. Quine. There are no ways of analytically founding the truth. The only possibility is to discover the natural processes that humans follow in generating knowledge.

The realm of certainty and demonstrative proof had already experienced a strong downsizing during the seventeenth century with the acknowledgement of the irreducible uncertainty of human life and the emergence of the theory of probability. The impact of this revolution was at once directed to morality and human choice theory. Blaise Pascal and Pierre Fermat defined the border of reasonableness as the choice of the alternative that maximizes expected value. The various paradoxes from St. Petersburg to Allais and Ellsberg led to change in the theory of reasonableness, attempting to resolve the discrepancy between description and normativity. This was made by tinkering with the utility or probability function while at the same time retaining the ideal of maximization or optimization. In any case, the concept of reasonableness, after a decline of interest during the end of the nineteenth and the beginning of the twentieth century, re-emerged in the 1950s and 1960s in the form of the concept of “rationality” in economics, psychology and other social sciences. This rationality was assimilated to the calculation of probabilities, utilities and optimal decisions. The ideal of optimization entered not only the behavioural sciences but also animal biology (e.g. optimal foraging theory) and artificial intelligence (e.g. optimal artificial agents) (Gigerenzer and Selten, 2001).

As for the epistemology and also for the philosophy of science, the crisis of the a priori concept of rationality of choice took a major step forward in the mid-twentieth century with the introduction by Herbert Simon of Bounded Rationality theory. In Simon, the naturalistic approaches find a common interpreter: both directly in the theory of rational choice, and also in the philosophy of science where Simon, in opposition to Karl Popper, is the major supporter of the logic of discovery as the psychology of discovery; and indirectly, in epistemology where he contributed to the naturalistic theory of knowledge through his works on inductive reasoning and problem solving.

Thomas Sturm (in Chapter 3 in this volume) recognizes that naturalism has drawn a variety of connections between rationality and empirical sciences, mainly cognitive sciences. It started out as a reaction to “armchair” methods such as conceptual a...

Table of contents

• Cover
• Half-Title Page
• Title Page
• Copyright Page
• Table of Contents
• List of Contributors
• Preface
• 1 Why bounded rationality?
• 2 What is bounded rationality?
• Part I Naturalizing bounded rationality
• Part II: Cognitive misery and mental dualism
• Part III Occam’s razor: Mental monism and ecological rationality
• Part IV Embodied bounded rationality
• Part V Homo Oeconomicus Bundatus
• Part VI Cognitive organization
• Part VII Behavioral public policies: Nudging and boosting
• Index