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Reconstructing a Computable and Computationally Complex Theoretic Path Towards Simon's Behavioural Economics

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  • Ying-Fang Kao
  • K. Vela Velupillai

Abstract

This paper aims to interpret and formalize Herbert Simon's notions of bounded rationality, satisficing and heuristics in terms of computability theory and computational complexity theory. Simon's theory of human problem solving is analysed in the light of Turing's work on Solvable and Unsolvable Problems. It is suggested here that bounded rationality results from the fact that the deliberations required for searching computationally complex spaces exceed the actual complexity that human beings can handle. The immediate consequence is that satisficing becomes the general criterion of decision makers and heuristics are the procedures used for achieving their goals. In such decision problems, it is demonstrated that bounded rationality and satisficing are more general than Olympian rationality and optimization, respectively, and not the other way about.

Suggested Citation

  • Ying-Fang Kao & K. Vela Velupillai, 2012. "Reconstructing a Computable and Computationally Complex Theoretic Path Towards Simon's Behavioural Economics," ASSRU Discussion Papers 1222, ASSRU - Algorithmic Social Science Research Unit.
    • Handle: RePEc:trn:utwpas:1222
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    References listed on IDEAS

    as
    1. Meehan, Eugene J., 1983. "Reason in Human Affairs. By Herbert A. Simon. (Stanford, Calif.: Stanford University Press, 1983. Pp. viii + 115. $10.00.)," American Political Science Review, Cambridge University Press, vol. 78(3), pages 889-890, December.
    2. Selda (Ying Fang) Kao & K. Vela Velupillai, 2011. "Behavioural Economics: Classical and Modern," ASSRU Discussion Papers 1126, ASSRU - Algorithmic Social Science Research Unit.
    3. Sargent, Thomas J., 1993. "Bounded Rationality in Macroeconomics: The Arne Ryde Memorial Lectures," OUP Catalogue, Oxford University Press, number 9780198288695, Decembrie.
    4. Kumaraswamy Velupillai, "undated". "The Computable Approach to Economics," Working Papers _005, University of California at Los Angeles, Center for Computable Economics.
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    Keywords

    Bounded Rationality; Satisficing; Heuristics; Computability; Computational Complexity;
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