Herbert A. Simon: A Decision-Making Perspective (Fry, 1989)

1. INTERNATIONAL UNIVERSITY OF JAPAN DCC5330 Public Management (Fall 2011) Presented by: AriefRachman (1B10D3) Sularno (1B10E1) Herbert A. Simon: A Decision-Making Perspective (Fry, 1989)

2. Introduction • Herbert Alexander Simon is an influential social scientist who had a Nobel prize in 1978 in economics field. • Fry (1989) concluded that Simon’s idea on individual and organizational decision had dominated his work in most of his life. • This presentation is focusing on individual decision making and organizational decision making.

3. Individual Decision Making • Simon proposed a new concept of individual decision making: Satisficing Man (1946). • Satisficing Man model is an individual decision making based on limitation of human being on his/her cognitive and analytical abilities to accept alternatives that are merely satisfactory or sufficient in regard to his/her level of aspiration. • Satisficing Man model is a limitation model of Economic Man.

4. Individual Decision Making The assumptions of Economic Man Model: The decision maker • knows all the relevant aspects of the decision environment, • knows all the alternative courses of action, • knows all the consequences of those alternatives with certainty, • knows preference function for all sets of consequences, • has the required computational skills, • maximizes the satisfaction of his values by choosing the alterna-tive that is followed by the most preferred set of consequences. However, Simon argues that this model is insufficiently actual decision-making behavior and is based on an overly restrictive view of rationality.

5. Individual Decision Making Bounded Rationality Concept that decision makers have to work under three unavoidable constraints: • only limited, often unreliable, information is available regarding possible alternatives and their consequences, • human mind has only limited capacity to evaluate and process the information that is available, and (3) only a limited amount of time is available to make a decision. Therefore even individuals who intend to make rational choices are bound to make satisficing (rather than maximizing or optimizing) choices in complex situations. (www.businessdictionary.com) Bounded Rationality is a basis for Simon’s Satisficing Man model.

6. Individual Decision Making Individual Decision Elements  employs stimulus (element 1) from environment and memory in brain (element 2) to choose any viable alternative solution for solving problems (element 3) at a given time.

7. OrganizationalDecision Making • Simon addressed two things that are concern with the relationship of the individual to the organization. • Why people join, remain in, or leave organizations (the decision to participate) and • Behavior while people are in the organization (the decision to produce)

8. OrganizationalDecision Making The decision to participate • Organization as a system of exchange • inducements for participation offered by the organization and contribution required by the organization of each participant • Participant will participate if participant perceive that there is net positive balance of inducements over required contributions • The organization is in equilibrium when all participants perceive that they are receiving such a balance, and it is solvent as long as the inducements offered by the organization are sufficient to give required contributions from the participants. • Simon using Inducement-Contribution Utility Scale that depend on two considerations: • Positions based on the perceived desirability of moving from organization and the perceived ease of such movement. • For first consideration, depends on the individual’s satisfaction with his or her participation • For second consideration, is a function of the availability of alternatives to participation in the organization and the participant’s awareness of those alternatives.

9. OrganizationalDecision Making Decision to produce • Related with employee motivation and compliance Motivation • Motivation to produce is a function of the satisfaction scale (desire to move). • If there is more profitable employment than current position, a satisfied employee may leave the organization. In contrast, if there is no alternative, an employee who is not satisfied may remain in organization. • Employee produces more to achieve greater satisfaction (linkage work effort and reward) Cont…

10. OrganizationalDecision Making Compliance • Related with authority • Simon defines authority as the power to make decisions in the form of a directive or command that guides the actions of another • Authority is exercised when the subordinates examines the merits of a directive and accepts the directive despite the fact that he is not convinced of its merits or thinks the directive is wrong.

11. OrganizationalDecision Making Two basic kind of decision procedures

12. Conclusion • Individual decision making in Simon’s view is based on Satisficing Man and Bounded Rationality. • In term of organizational decision making, Simon argues that when the individual decide to participate in the organization, an organizational role is assumed and organizational loyalties are adopted. Thus, potential conflict between individual and organizational interest is resolved.

13. Thank you