A Conceptual History of the Emergence of Bounded Rationalityorganizing our data: Lisa Demidovich, Justin Dubas, Thomas Scheiding, and Courtney Zinter. Esther-Mirjam Sent would like

A Conceptual History ofthe Emergence ofBounded Rationality

Matthias Klaes and Esther-Mirjam Sent

“That’s a great deal to make one word mean,” Alice said in a thoughtfultone. “When I make a word do a lot of work like that,” said Humpty

Dumpty, “I always pay it extra.”—Lewis Carroll, Through the Looking Glass

How to tell the history of the concept of “bounded rationality”? Histo-rians have tended to understand concepts in two different ways (Richter1996). In intellectual history, mentalistic or Platonist interpretations areprevalent, keeping to Arthur Lovejoy’s (1936) precept of tracing con-cepts as implicit assumptions or mental habits through various disci-plines and epochs. In this idealist form of conceptual history, particularexpressions act as secondary manifestations of an underlying concep-tual development. While this assumes an underlying continuity of intel-lectual history, a second strand of conceptual history, to which we will

Correspondence may be addressed to Matthias Klaes, Director, Stirling Centre for Eco-nomic Methodology, Department of Economics, University of Stirling, FK9 4LA, U.K. (e-mail: [email protected]); or to Esther-Mirjam Sent, Nijmegen School of Management, Uni-versity of Nijmegen, P.O. Box 9108, NL-6500 HK Nijmegen, The Netherlands (e-mail:[email protected]). We would like to thank the following colleagues and friends for their feed-back on earlier drafts: Steve Fuller, Omar Hamouda, Wade Hands, Jack Vromen, and the par-ticipants in a joint session of the INEM meetings and the conference of the U.K. HET Groupin 2002, in the EIPE seminar at Erasmus University Rotterdam in autumn 2002, and in the Eu-ropean Society for the History of Economic Thought meetings in 2003. We greatly appreciatethe comments of two anonymous referees. Thanks also to the research assistants who helpedorganizing our data: Lisa Demidovich, Justin Dubas, Thomas Scheiding, and Courtney Zinter.Esther-Mirjam Sent would like to thank the Netherlands Institute for Advanced Study in theHumanities and Social Sciences (NIAS) for its generous support.

History of Political Economy 37:1 © 2005 by Duke University Press.

28 History of Political Economy 37:1 (2005)

refer here as the “institutional” approach, has placed greater emphasis onthe discontinuous elements of historical development (Koselleck [1972]1985; Stierle 1979; Palonen 1985, 1989). Whereas idealist conceptualhistory takes the content of a concept as given and traces the forms inwhich that concept has found expression in historical discourses, the in-stitutional approach reverses this order of emphasis, taking form as givenin order to trace content. Its heuristic consists in tracing not content buta certain class of words.1

In our account of the history of “bounded rationality” we will adoptthis second approach to conceptual history. Our aim is twofold. On theone hand, we provide a comprehensive account of the emergence of“bounded rationality” in the social scientific literature of the twentiethcentury, building on previous work by one of the present authors (Sent1997, 1998a, 1998b, 2004). On the other hand, we submit to the readera case study in the application of a historiographic approach to concep-tual history novel to the history of economics. While an earlier study bythe other of the present authors (Klaes 2001) has adopted this approachto trace the history of individual expressions, our objective here is toanalyze the historical development of a family of expressions, with par-ticular attention being paid to how individual members may assume adominant position.

It is a strength of idealist conceptual history that it looks beyond themaze of the “penumbra of vagueness” (Popper [1945] 1966, 19) of theterms we employ, and that it embraces historical developments reach-ing beyond the usage pattern of a single expression only. Yet at the sametime, it is precisely this concern that leaves idealist conceptual historyvulnerable to anachronistic interpretations of the past (Klaes 2003a). Ifsynonymy becomes the criterion by which to judge whether two expres-sions are manifestations of the same concept or not, the past will aboundfrom premonitions of our present-day concepts. It is here that the insti-tutional approach to conceptual history offers a different perspective. Itsmethodological focus is not the uncovering of a common idea or themethat runs through various literatures and epochs. Instead, it concentrates

1. Linguistically more precise, the second type of conceptual history is concerned with lex-emes (Lyons [1977] 1993, 18–20), as opposed to token words as they appear in written text,word forms, or the “expressions” of philosophical semantics. For the purposes of the presentpaper we use the terms “word,” “expression,” “notion,” and “term” interchangeably, and referto the class of lexemes considered in the approach to conceptual history we are interested in as“concepts.”

Klaes and Sent / Emergence of Bounded Rationality 29

on the fate of individual expressions. In principle, these may be studiedfrom a semantically agnostic stance. In the institutional approach, a par-ticular trajectory of conceptual development is defined in terms of the(material) continuity of a particular word or expression, rather than the(semantic) continuity of an underlying idea.

Yet, we should also recognize that the coherence of scholarly dis-course over time may reach beyond the confines of individual expres-sions. It is thus necessary to strike a balance between parochial wordhistories and the embarrassment of riches that the traditional historianof ideas is in danger of uncovering from the past. Our answer to thisdilemma is to follow conceptual historians who encourage the studyof conceptual fields (Hampsher-Monk, Tilman, and van Vree 1998, 2).Conceptual fields form the bedrock from which particular expressionsemerge as a focal point during one period, fade from view in anotherperiod, and maybe enjoy a renaissance several decades later. A concep-tual field in the sense employed here is a collection of emergence anddiffusion trajectories of individual concepts. In historiographic terms,its analysis consists of the aggregation of the history of individual ex-pressions into an investigation of the complex interdependencies of theevolving institutional network of expressions.2

We have employed the following heuristic in this paper to analyzethe conceptual field of “bounded rationality.” In order to identify can-didate conceptual trajectories of what we will call the “BR field” fromnow on, a list of keywords was drawn up that both authors judged to besufficiently related to historical and current interpretations of “boundedrationality” to warrant further scrutiny.3 In a second step, this list servedas the search criterion for identifying the records making up our histor-ical corpus. Third, upon reading through the entries, the list was furtherrevised by either eliminating expressions that turned out not to be an-chored in the BR field, or by adding new expressions that were found tobe so. In the latter case, the respective expressions served as additionalsearch criteria to add further conceptual trajectories to the field.

2. Although not attempted here, in spirit our analysis encourages an extension of the histor-ical lens to the histories of the individuals, groups, professional bodies, and all the other entitiesthat sustain a conceptual field, and figure prominently in the institutional history of economics(see http://eh.net/lists/archives/hes/nov-1998/0011.php).

3. A more systematic approach (Fortier, Keen, and Fortier 1997) would have been to con-vene an expert panel to draw up the list or to interview members of the various discourse com-munities employing “bounded rationality.”


Table 1 The BR Field, 1840–1995 (first occurrence of constituent con-cepts)

Concepts Total

Base fieldLimited intelligence 1840 73Finite intelligence 1880 40Incomplete rationality 1922 7Limited rationality 1945 105Approximate rationality 1948 9

Bounded rationality 1957 626Procedural rationality 1963 124Finite rationality 1972 17Constrained rationality 1978 7

We based our analysis on JSTOR, currently one of the most compre-hensive full-text archives of academic journal articles available in thesocial sciences. JSTOR archives more than 240 journals, with in excessof 700,000 full-length articles. Journals are selected for JSTOR basedon the number of institutional subscribers, a citation impact factor anal-ysis, recommendations from experts in the field, and the length of time ajournal has been published. The gap between the most recent publishedissue of a journal and the most recent issue available on JSTOR variesfrom two to five years. JSTOR is thus not a comprehensive database, butits content may be regarded as representative for the main developmentsin the fields it covers. Its historical focus makes it a prime candidate forlongitudinal analysis. JSTOR contains only journal publications, but itallows some insight into monographs through book reviews publishedthere. Although our graphical and tabular representations include the re-views and not the books, the latter were checked for some verbal analy-ses. We further consulted the Oxford English Dictionary to learn aboutthe historical origins of some of the concepts.

1. The Conceptual Field of Bounded Rationality

In this section we report on our analysis of the BR field from 1840 to1995. Our heuristic procedure led us to the following keywords: “admin-istrative rationality,” “approximate rationality,” “bounded intelligence,”


0

10

20

30

40

50

60

1885 1895 1905 1915 1925 1935 1945 1955 1965 1975 1985 1995

Approximate Rationality

Finite Intelligence

Incomplete Rationality

Limited Intelligence

Limited Rationality

Figure 1 The base field (1876–1995, per annum counts for ten-year in-tervals). This figure has not been adjusted for the total number of entriesin JSTOR, since these numbers exhibit a roughly linear trend that doesnot affect the graph too much for our purposes. A normalized figure isavailable from the authors by request.

“bounded rationality,” “boundedly rational,” “constrained rationality,”“finite intelligence,” “finite rationality,” “incomplete rationality,” “lim-ited intelligence,” “limited rationality,” “procedural rationality,” and “re-stricted rationality.” For each entry in our database, we noted the sen-tence in which the concept occurred and further, if deemed appropriate,included one or two sentences directly before the occurrence or one ortwo sentences immediately after. Our search resulted in 1,111 entries.Because of JSTOR’s “moving wall,” we eliminated the items from 1996onward. Also, upon checking the passages in which “administrative ra-tionality” occurred, we decided not to include this concept in our anal-ysis, as it turned out to be used in a broadly different sense, in termsof the bureaucratic rationale of an organization.4 Finally, “restricted ra-tionality” occurred only once, and “bounded intelligence” not at all, sothese two expressions were not used for further analysis either.

A further point to consider is that searching JSTOR for compound ex-pressions will return a number of spurious results. A search for “bounded

4. A typical example: “Efficacy, efficiency, and profitability in the narrowest economicsense have become the only standards of administrative rationality” (Berger, Gourevitch,Higonnet, and Kaiser 1969, 454).


rationality” will return all instances of “ . . . bounded. Rationality . . . ”in the full text, as punctuation is disregarded. An additional complicationarises if the adjective may also function as a verb. Consider this passagein Bladen 1948, 67 n, turned up by a JSTOR search for “approximaterationality”: “but the results approximate rationality fairly well on av-erage.” It is thus paramount to scrutinize individually every referenceturned up by the full-text search to confirm the occurrence of the con-cepts in question. Whereas our tables and figures present the first resultsof our searches, these are further examined in our comments.

Table 1 shows the set of heuristically generated keywords, togetherwith their earliest and total occurrence in the corpus. Several implica-tions can be drawn from this overview. Note first that not all of the key-words figure equally prominently in the corpus. Second, the appearanceof “bounded rationality” in 1957 allows us to identify a field of preced-ing expressions. This centers on the notions of “limited intelligence” and“finite intelligence,” together with “incomplete rationality,” “limited ra-tionality,” and “approximate rationality.” We will refer to this subset ofexpressions as the “base field” of “bounded rationality.”

The diffusion trajectories of the constituent concepts of the base fieldare quite diverse (figure 1). “Finite intelligence,” the most prominent ex-pression between 1880 and 1935, is reduced to a marginal existence inthe BR field thereafter, while “limited intelligence” exhibits a consis-tent presence throughout the period under consideration. The immedi-ate post–World War II years witness a structural shift in the BR fieldfrom “intelligence” to “rationality,” with the constituent concepts of “in-complete rationality,” “limited rationality,” and “approximate rational-ity” entering the picture. “Incomplete rationality” has one early ephem-eral occurrence in 1922, only to reoccur several decades later to join themarginal status of “finite intelligence” and, as it turns out, “approximaterationality.” At first, though, the trajectory of “approximate rationality”is similar to “limited rationality.” But from 1965, “limited rationality”continues on a steep trajectory of exponential growth, leaving the otherconcepts increasingly behind. In fact, “limited rationality” appears to es-tablish itself as a focal concept of the BR field after 1975, only beingeclipsed by “bounded rationality” itself as we will see.

“Limited intelligence” can be identified as a living term of ordinarylanguage throughout the period under consideration (1840–1995). Dueto the composite nature of this expression, the Oxford English Dictio-nary does not document its historical emergence. It seems plausible to


date it not before the seventeenth century, this being the time when “lim-ited” acquired the meaning of “bounded” or “restricted.” It occurs firstin our corpus in 1840 (Report to the Council of the Statistical Society),followed by more frequent occurrences from 1880 onward, in a wholerange of disciplines, including the sciences (Duke of Argyll 1880, 231),language studies (Menger 1894, 159), politics (Emery 1895, 84), andeconomics (Adams 1886, 103).5 A typical usage, incidentally from thefield of economics, would be similar to that by B. E. Walker (1894, 244):“It is, perhaps, easier for a man with limited intelligence to make a selec-tion if the banks have large capital and are of semi-national importance.”

An important aspect to note in the context of “limited intelligence”are the rather prejudicial (to our ears) if not offending overtones withwhich this concept is sometimes employed. T. Fowler (1899, 297) writesthat simple love of truth “may coexist with an extremely limited intel-ligence.” Ralph E. Danforth (1925, 185) finds that “the chief difficultyin educating all mankind to the point of practicing eugenics would lie ininducing people with such limited minds as the average man possessesto want to try it.” James Bryce (1921, 675) revels in noting that “mas-sacre is the expedient to which the Turks always resort; their limited in-telligence, incapable of reforming their administration, flies at once tobloodshed.” Sumner Slichter (1945, 111) comments that “most mem-bers of the work force are industrious, reliable, reasonably intelligent,and able to get on with other people, but about 4 or 5 percent of the jobseekers have very limited intelligence.” Rayford W. Logan (1951, 561)finally appraises the historical value of the memoirs of Isaac Jefferson,one of the slaves of Thomas Jefferson, by alerting the reader that “thevalue of the slave’s observations and comments might be lessened by hislimited intelligence.”

In contrast to the nontechnical use of “limited intelligence” that oc-curs in a wide range of disciplines, frequently with the noted prejudi-cial resonances, “finite intelligence” is a technical term largely confinedto the philosophical literature. The earliest documented occurrence of“finite intelligence” in the OED can be found in John Norris’s EssayTowards the Theory of the Ideal or Intelligible World ([1701] 1978,I.i.21), where it is used in contrast to properties ascribed to God. Thefirst source in our corpus in which it is employed dates from the late nine-teenth century (Caird 1880, 550). In this early part of the period underconsideration, “finite intelligence” is typically used to set up a contrast

5. Bain (1876, 193) speaks of men whose “intelligence was . . . limited.”


to “the one universal thought” (Archer-Hind 1889, 131), the “Absolute”and “Infinite” (Denovan 1889, 218), or the “Supreme Being” (Chrysos-tom 1894, 148). Classic authors frequently referred to in this context areThomas Aquinas and Spinoza.

“Finite intelligence” was, however, not exclusively used in a religiouscontext, or in philosophical reflection on the nature of the Absolute. Forexample, a number of late-nineteenth-century sources refer to the Ger-man philosopher Immanuel Kant (e.g., Seth 1889; Schurman 1893), whosought to determine the nature and limits of human knowledge and whoquestioned how faithfully mental images represent physical objects. InKant’s view on epistemology, knowledge begins with experience, whichresults from the cooperation of one’s senses and one’s mind. Whereas thesenses determine the matter of experience, the mind governs the form.Whereas the senses control the content of experience, the mind influ-ences the structure. As a result, we know a phenomenal world, but wehave no knowledge of things-in-themselves. In other words, we have nocertain knowledge of noumenal reality, of things-in-themselves as theyexist apart from the mind. Intelligence, then, is “finite” or “limited” be-cause one’s senses represent perceptions only, and not external, indepen-dent realities.

With the beginning of the twentieth century, one can observe a grad-ual distancing of “finite intelligence” from its religious connotations, asit refers more and more to the limitations of human cognition in a natu-ralistic way. A few earlier sources begin to use the expression in a wayapproaching the ordinary language usage of “limited intelligence,” no-tably F. Y. Edgeworth (1890, 467). Together with Henry Carter Adams(1886, 103), who also employs “limited intelligence,” Edgeworth is thefirst economist appearing in our corpus.6 It is in this period that connec-tions to “limited intelligence” can be observed. F. C. S. Schiller (1906,482), for example, talks about the “limitations of a finite intelligence.”Similarly, Hilda D. Oakeley (1922, 440) finds in a discussion of the sci-entific method that “cooperation rather than solitude seems to be themethod of science in the strict sense. There is, at least, cooperation inthought, through the endeavor to assume the point of view of the leastlimited finite intelligence, or the collective mind.” The clearest semanticconnection is due to Arthur Whitmore Smith (1920, 338): “[John Tyn-dall] did not believe that the ultimate truths of the universe could be

6. From the turn of the century, the expression can also be observed in other social sciences,notably sociology (Small 1908, 6; Ford 1909, 99).


expressed in words, or that our limited or finite intelligence could as yetcomprehend them.”

The base field subsequently broadens to incorporate variations of “ra-tionality,” a development that will find its most marked expression in thefirst occurrence and further diffusion of “bounded rationality.” “Ratio-nality” first shows up in terms of “incomplete rationality” as an out-growth of “finite intelligence,” in Oakeley’s 1922 article.7 The article,titled “On the Meaning of Value,” illustrates well the typical gist of philo-sophical discussions of the concept of finite intelligence in the decadesaround the turn of the century, while providing a good snapshot of linksfrom “finite intelligence” to “limited” and “bounded” rationality. Con-trary to what its title suggests to the reader who approaches it from thediscipline of economics, the article grapples with the old question ofhow idealism seeks to reconcile the “absolute Infinity of Mind” (433),a notion she takes from Spinoza, who equates it with God. Individual-ized into separate selves, “Universal Mind . . . becomes finite and thusrestricted to a single point of view in reality” (434).

Ours is a world of “finite intelligences” or of “personal beings lim-ited in knowledge and range of experience” (439). For these beings of“finite knowledge” (442) to fully comprehend ideals of value is beyond“those logical relations accessible to finite intelligence” (442), althoughthey may become partly “manifest” to practical—as opposed to pure—reason. The differences that result from this only partial apprehension ofreality (i.e., the world of ideas) produce an “infinity in the kind and num-ber of the experiences of conscious existence which seems incapable ofreduction to the orderly and harmonious system of a fully rational uni-verse” (434–35), a perturbation that Oakeley refers to as the “incompleterationality” of the universe. In the idealist context of the discussion, thismeans that incomplete rationality is a central property of the finite intel-ligence with limited knowledge. One finds thus many dimensions of theBR field resonating in Oakeley’s paper, which marks a turning point inthe further development of the BR field toward further modifications ofthe notion of rationality.

“Limited rationality” is the next of these variations that show up inour corpus, for the first time in 1945. In a number of ways, and distin-guished from the ephemeral use of “incomplete rationality” by Oakeley,the emergence of “limited rationality” may be regarded as the beginning

7. Hilda D. Oakeley (1867–1950), philosopher, vice-principal of London’s King’s Collegefor Women (Oakeley 1939; Dyhouse 1995).


of a structural shift in the field, which increasingly realizes the com-municative potential of various notions of “rationality.” Compared tothe three expressions considered so far, “limited rationality” follows arather different diffusion pattern that exhibits strong exponential growthup to the present. According to the OED, “rationality” again dates fromthe seventeenth century. Even though “limited” was prima facie lexicallyavailable as long as “rational,” the combined expression “limited ratio-nality” does not register in our corpus before Almond 1945.8

The next author to use “limited rationality” is Herbert Simon (1955).9

It appears next in articles by Oliver Williamson (1967) and John Harsanyi(1969).10 While the concept does not occur in full article-length contri-butions in the intervening period, it seems to have been an important ve-hicle for the reception of Simon’s work, exemplified by a number of re-views (Washington Bell, Weintraub, Earley, and Meyer 1957, 336; Luce1957, 85). Whereas Simon and Harsanyi make no reference to “boundedrationality” in their articles, Williamson does employ both concepts in-terchangeably.

In political science, “limited rationality” comes to be associated withthe insights of Charles Lindblom (1959), which are similar to those ofSimon. Also note that Lindblom makes no mention of “bounded ratio-nality.”11 His article was voted among the top three policy pieces of alltime by readers of Policy Currents, the newsletter of the public policysection of the American Political Science Association. This is a possibleexplanation for the observation that “limited rationality” shows tenta-tive beginnings from 1945 onward, but then develops an independentdiffusion history shortly after “bounded rationality” exhibits significantgrowth rates.

The base field is thus made up of a set of expressions that clusterinitially around various restrictions and qualifications of “intelligence.”“Finite intelligence” is initially mostly used in a technical sense in thephilosophical literature, but subsequently broadens into a concept used in

8. Almond 1945 is a contribution to political science that makes no reference to HerbertSimon’s insights.

9. In Simon 1947, 39–41, 80–84, one finds references to the limits to rationality, with anearly appearance of “bound” in this context: “Perhaps this triangle of limits does not completelybound the area of rationality” (41).

10. It also appeared in a contribution to literary criticism in 1955 (Anderson 1955) thatfalls outside of our narrative. John Harsanyi (1965) uses “limited rationality” earlier in a bookreview.

11. Interestingly, Lindblom also does not mention “bounded rationality” explicitly severaldecades later (Holmes 1979).


a more heterogeneous way similar to “limited intelligence.” After WorldWar II, several “rationality” concepts joined this field within little morethan a decade, triggering a process in which “intelligence” was gradu-ally replaced. A pivotal text marking the transition could be identifiedin Oakeley’s (1922) use of “incomplete rationality.”12 Whereas the useof “finite intelligence” gradually ceased, “limited rationality” continuedbeing used throughout, becoming a focal concept of the BR field in the1980s.

2. The Emergence of Bounded Rationality

In the previous section, several changes in the base field have been iden-tified and described in detail. We will now turn to the emergence of“bounded rationality” itself, focusing on its occurrence as an innovativeevent. Herbert Simon, very likely the first person to have used “boundedrationality,” tentatively applied a number of expressions that seemedavailable on the basis of associations with what he sought to express. Ina series of writings between 1947 and 1957, he consciously refined andreplaced concepts such as “approximate rationality” and “limited ratio-nality” until settling for “bounded rationality.” Simon (1999, 23) laterreflected on this act of conceptual innovation as follows: “You have torealize about the bounded rationality terminology that I began to use thisas a label for the things that economists needed to pay attention to—andwere not. It was never intended as a theory in any sense.” By constructinga new label, Simon explicitly and implicitly drew from the base field. InSimon’s (1957b, 63) words, “Like Humpty Dumpty, we will insist thata word means what we want it to mean. But if our aim is to constructa body of science, and if we already have in view the general range ofphenomena to be explained, our decisions may be willful, but they mustnot be arbitrary.”

In all likelihood, “bounded rationality” first appeared in print in Mod-els of Man (Simon 1957b, 198).13 In his mature work, Simon used the

12. To avoid historiographic misunderstandings, it should be stressed that Oakeley’s articleis pivotal in the sense that it assumes a central position of conceptual crossovers within theBR field, as we elaborated above. This position does not imply that the article was “influen-tial” in the sense influence is commonly evaluated in the history of ideas or in a sociologicalperspective.

13. Claims to first occurrences in a vast historical corpus such as ours can only ever betentative, forming a hypothesis inviting our colleagues in the history of economics and relatedfields to put it to the test and, if possible, refute it.


concept to “designate rational choice that takes into account the cogni-tive limitations of the decision-maker—limitations of both knowledgeand computational capacity” (Simon 1987, 266). Through the use of“bounded rationality,” Simon sought to criticize neoclassical economistsfor their lack of interest in the formal foundations of rationality. Instead,Simon advanced the concept of bounded rationality in an effort to in-clude the whole range of limitations on human knowledge and humancomputation that prevent economic actors in the real world from behav-ing in ways that approximate the predictions of neoclassical theory. Fo-cusing on external, social constraints and internal, cognitive limitationsto decision-making, Simon stressed the process rather than the outcomeof decision-making. Awareness of these bounds, according to Simon,caused people to use loosely articulated heuristics, or rules of thumb,when gathering information and choosing among alternatives. Accord-ing to Simon, these heuristics were employed generally because theyhad been proven successful in the past. Furthermore, they implied thatthe decision-maker was searching merely for an adequate solution. Thatis, people satisficed, they accepted the first solution that was satisfactoryaccording to a set of minimal criteria.

We find that the emergence of “bounded rationality” in Simon’s workwas well embedded in the base field. What is more, in a number of ways“bounded rationality” became the new core expression of the BR fieldthat previously clustered around the “finite”/“limited intelligence” pair,due to a gradual process of switching from one concept to another. As wehave seen above, experimentation with restricted notions of rationalitybegan well before Simon coined the term “bounded rationality” in 1957.Figure 2 revisits the development of the BR field from 1956 onward.

Both “limited rationality” and “approximate rationality” predate“bounded rationality,” albeit only by a couple of years. Short of Simon’sappeals to “limits to rationality” in Administrative Behavior (1947),“limited rationality” occurs in the corpus three times before 1957: in thefield of politics in common sense usage (Almond 1945; Anderson 1955)and in Simon 1955, used in a technical sense. “Approximate rational-ity” as an expression occurs in our database two times before 1957: inSimon 1955 and Rostow 1956.14 As noted in the previous section, theephemeral occurrence of “incomplete rationality” constitutes the first

14. As mentioned earlier, Bladen (1948) used “approximate” as a verb in “approximaterationality.” “Approximate rationality” also appears in Simon 1956, the companion paper toSimon 1955. Note that the companion paper is not included in our JSTOR database, and istherefore excluded from our quantitative evaluations.


0

50

100

150

200

250

1960 1965 1970 1975 1980 1985 1990 1995

Approximate RationalityBounded RationalityConstrained RationalityFinite RationalityIncomplete RationalityLimited RationalityProcedural Rationality

Figure 2 The BR field (1956–95, five-year counts). This figure has notbeen adjusted for the total number of entries in JSTOR, since these num-bers exhibit a roughly linear trend that does not affect the graph too muchfor our purposes. A normalized figure is available from the authors by re-quest.

and at least equally significant tentative experiment at the margins of theBR field. Yet, Oakeley’s use of “incomplete rationality” in 1922 and Si-mon’s appeals to “limited rationality” could not be more different. Oake-ley’s usage bears all the signs of a serendipitous conceptual innovationthat never got “off the ground.” In fact, it was only taken up again dur-ing a brief conceptual renaissance in the 1980s, after other “rationality”concepts had taken off, most notably “bounded rationality” itself.

Simon, then, did not invent “limited rationality.” The way it occursin Almond 1945 indicates that as an ordinary language expression, itmust have been well established in political discourse.15 In his own ra-tional reconstruction, Simon suggests that he picked up the concept oflimited rationality from John R. Commons and Chester Barnard (Marchand Simon 1958, 169–71; Simon 1991, 86–87). However, Commons

15. We might even speculate about the existence of a semantic link, possibly indirect, be-tween “incomplete rationality” as documented in Oakeley 1922, and the emergence of “limitedrationality,” both developments being traces of a secularizing move from the old contexts of “fi-nite intelligence” on to the new grounds opened up by expressions based on “rationality.”


(1934, 58, 90) referred to “limiting factors” and Barnard (1938) spokeof “strategic factors.” Administrative Behavior (Simon 1947) talks of“limits to rationality” instead, in order to establish a contrast between“administrative man” and “economic man.” In our corpus, Simon firstappealed to “limited rationality” in 1955 where he used it to distinguishmodels of “limited” rationality and those of “global” rationality (Simon1955, 112–13). In this paper, he also turned the expression into a techni-cal term of the model that he employs. In fact, of all of Simon’s research,this paper is the one that comes closest to the mathematical format withwhich economists are comfortable and that economists who wish to re-fer to bounded rationality most commonly choose for citation (Simon1991, 165). Perhaps not surprisingly, very few economists refer to theless mathematical companion paper “Rational Choice and the Structureof the Environment” (Simon 1956).16 Both the 1955 and 1956 papersappeal to “approximate rationality” as well. Again, the focus is on de-veloping a technical interpretation of “administrative man” as an alter-native to “economic man”: “The broader aim . . . in constructing thesedefinitions of ‘approximate’ rationality is to provide some materials forthe construction of a theory of the behavior of a human individual orof groups of individuals who are making decisions in an organizationalcontext” (Simon 1955, 114).

Simon experimented with several expressions derived from the BRfield. During the transition from “approximate rationality” and “limitedrationality” to “bounded rationality,” Simon discussed “boundary condi-tions” in his early work (e.g., Simon 1943). In Simon’s (1991, 83) words,“By boundary conditions I mean the assumptions that have to be made.”In other earlier publications (e.g., March and Simon 1958, 169–71; Si-mon 1955) there is also mention of the “boundaries of rationality” orthe “boundary.” Orthodox economics, according to Simon, posits peoplewho behave rationally subject to a wide range of boundary conditions.In his opinion, the “action” lies in the boundary conditions. He sought tounderline this by combining “boundary” and “rationality” into “boundedrationality.”

The way Simon sought to address his new conception of rational-ity underwent incremental modification in later editions of Administra-tive Behavior. This is evident from the added introductions, which high-light that the book is concerned with “the boundary between the rational

16. Whereas the first paper inquires “into the properties of the choosing organism,” the se-quel inquires “into the environment of choice” (Simon 1955, 100).


and the nonrational aspects of human social behavior” (Simon 1957a,xxiv; 1976, xxviii; 1997, 18).17 Whereas the central concern remainedthe same throughout the different editions of the book, its descriptionchanged, reflecting a gradual transition from “limited” to “bounded” ra-tionality:

• Human behavior is intendedly rational, but only limitedly so (Si-mon 1957a, xxiv; our emphasis).

• Human behavior is intendedly rational, but only limited so (Simon1976, xxviii; our emphasis).18

• Human behavior is intendedly rational, but only boundedly so (Si-mon 1997, 88; our emphasis).

Our evaluation of the transition to “bounded rationality” returns usto the publication likely to be the first to mention this expression. Inour database, it first appears in book reviews of Models of Man (Si-mon 1957b).19 The volume contains sixteen reprinted articles, and firstpresents bounded rationality as a principle in the introduction to the fi-nal section of contributions on “rationality and administrative decisionmaking”: “The alternative approach employed in these papers is basedon what I shall call the principle of bounded rationality: The capacity ofthe human mind for formulating and solving complex problems is verysmall compared with the size of the problems whose solution is requiredfor objectively rational behavior in the real world—or even for a rea-sonable approximation to such objective rationality” (198).20 Witnessingthe transitional phase between “limited” and “bounded” rationality, sev-eral of the book reviews refer to both concepts. In Science, R. DuncanLuce (1957, 85) sees “limited rationality” as one of the three theses ofthe book and views the principle of bounded rationality as a componentof this thesis. Frederick Mosteller (1959), in sociology, refers to “limitedor bounded rationality” and links it with Simon’s later work on artificialintelligence. Robert M. Solow’s review (1958) appears in an economics

17. To clarify, these comments are absent from the first edition (Simon 1947).18. “Limited so” seems to be an error, but perhaps Simon was thinking of “limited

rationality.”19. It also shows up in book reviews of Organizations (e.g., Kaufman 1959), with most

mentioning “limited rationality” as well, as noted before. It also appears in a book review ofJames March’s Handbook of Organizations (1965) by W. H. McWhinney (1966), who makesno mention of “limited rationality.”

20. The book has an index entry for “bounded rationality, principle of” pointing to the in-troduction to part 4 that explicitly discusses this “principle” but also to papers that do not do so.


journal and notes the principle of bounded rationality as a reasonable in-sight, although it suggests that the characterization of “economic man”is not entirely fair (83). Finally, in mathematics, R. A. Good (1958) picksup on the principle of bounded rationality, but makes no mention of “lim-ited rationality,” just like Solow.

“Procedural rationality” first appears in our corpus in 1963 (Jacobson1963) and all of its occurrences (Hammond 1968; Pfaff 1970; Thomp-son 1969) are within the discipline of political science, to which we re-turn in the following section. Simon picks up the concept in his RichardT. Ely Lecture (Simon 1978) as well as several other publications, af-ter which the concept experiences a path of modest growth. Jacobson1963 contrasts spontaneity, uniqueness, and intuition with “a preoccu-pation with social order, procedural rationality, and the material bases ofpolitical association and division” (561). Hammond 1968 views proce-dural rationality as one of three standards of rationality in bureaucracies,along with radical and liberal or transactional rationality (58). Thomp-son 1969 associates procedural rationality with institutional structuresand contrasts it with human or substantive rationality (673). Hence, theearlier discussions of procedural rationality focus on rationality as op-posed to its bounds, constraints, limits, and so on. The meaning in Simon1978 is quite the opposite, for he stresses the process aspects of proce-dural rationality and contrasts it with the outcome focus of substantiverationality. In Simon’s opinion, “We must give an account not only ofsubstantive rationality—the extent to which appropriate courses of ac-tion are chosen—but also procedural rationality—the effectiveness, inlight of human cognitive powers and limitations, of the procedures usedto choose actions” (9). Yet by then, Simon had embraced and becomeknown for his insights concerning the concept of bounded rationality, so“procedural rationality” was to perform a secondary role in his corpusas well as in references to his work.

In contrast to all other expressions, “bounded rationality” exhibits asignificant amount of conceptual experimentation at the hands of Simon,who drew from the BR field initially when he employed “limited” and“approximate” rationality. But one may speculate that for his purposeof founding a whole research program in economics on a new conceptof rationality, “limited rationality” suffered from the negative connota-tions of “limited intelligence” mentioned above. As to “approximate ra-tionality,” this expression did not exhibit the linguistic “robustness” of“bounded rationality,” which managed to tie rationality to the important


technical implications of boundary conditions. Further evidence for Si-mon’s attempts to strengthen the concept is due to the “principle” labelhe attached to it. One is tempted to say that history proved Simon’s con-ceptual experimentation right, although a richer analysis is necessary tosubstantiate this point in more detail. While the precise form of the ex-pression that Simon chose as the vehicle of his separate research agendamight have mattered little or not at all, of all the expressions of the con-ceptual field, only “bounded rationality” mustered an explosive diffusionrecord. This brings us to taking a closer look at how “bounded rational-ity” became gradually institutionalized as a key concept, before takingin section 4 a bird’s-eye view of its subsequent diffusion across a broadrange of disciplines.

3. The Gradual Institutionalization ofBounded Rationality

Following Models of Man (Simon 1957b), at first sources frequently re-fer to “bounded rationality” as a “principle” (e.g., Mitchell 1961; Laf-font 1975). In fact, most early appeals to the concept include this label.However, when they discuss the interpretation of this principle, they of-tentimes use “limited rationality,” which shows that the latter was currentusage in the 1940s and 1950s. Yet, a transition occurred when this nor-mal usage was translated into a “principle,” exchanging “limited” with“bounded.” In other words, “bounded rationality” becomes special onlyin the course of institutionalization, something of which the first userswere unaware. This strengthens our assessment of the innovation as aninstance of conscious experimentation.

Following the second edition of Administrative Behavior (Simon1947; 1957a), the next label that is widely used is “theory” (e.g., Harsan-yi 1969; Kunreuther and Slovic 1978). Following Models of BoundedRationality (Simon 1982), appeals to the “model” of “bounded ratio-nality” become widespread (e.g., Chenault and Flueckiger 1983; Moe1984; Chayes and Chayes 1993).21 Oliver Williamson appears to favor“bounded rationality” as an “assumption” (see, e.g., Williamson 1981a,1981b). Not until the 1970s do we witness “boundedly rational” in ourdatabase (e.g., Futia 1974; Appelbaum and Harris 1977; Schotter 1979).After its initial appearance, it follows the pattern of the noun. This is

21. Simon (1955) refers to models of “limited” rationality.


further indication of the successful diffusion of “bounded rationality,”as a technically coined noun transmutes into adjectival usage.

The first two appearances of “bounded rationality” in full-length ar-ticles occurred in the discipline of political science (Eulau, Wahlke, Bu-chanan, and Ferguson 1959; Mitchell 1961). In fact, most of the im-portant shifts in the BR field seem to have originated in this discipline,beginning with Almond 1945 and leading up, via the book reviews, tothe first articles that take up the concept. In addition it should not be for-gotten that Administrative Behavior itself was more than anything elseintended as a contribution to political science.22 Briefly, World War IImarked a transition point in the development of political science in gen-eral and its subfield public administration in particular (Golembiewski1977; Henry 1995). Whereas the earlier literature had endeavored to de-velop “principles” of administration, Simon especially pointed out theinconsistencies in this approach. Criticizing the theoretical outlook, Si-mon sought to create a “pure science of administration.” AdministrativeBehavior was to be Simon’s first move toward the advancement of analternative empirical foundation that would focus on decision-making.Yet, this development “was rejected generally and early” and “today getsits strongest support in business schools and in various academic unitsorganized around a focus on generic management” (Golembiewski 1977,13). More than a decade after the publication of Administrative Behav-ior, the organizational approach advocated by Simon made way for apublic policy focus. The incremental model of public policymaking de-veloped by Charles Lindblom (1959), who was mentioned earlier for hisinsights on “limited rationality,” constituted one stream in this new fo-cus. Briefly, “incrementalism means that only a limited section of pol-icy alternatives are provided to policymakers, and that each one of thesealternatives represents only an infinitesimal change in the status quo”(Henry 1995, 302). Although reflecting many of the basic ideas of theorganizational approach, incrementalism directed its attention more to-ward political or policy-making processes as well as toward specific pub-lic programs.

Based on our database, figure 3 provides an overview of the distribu-tion of “bounded rationality” across disciplines, leaving out those withrelatively few entries. Since economics clearly dominates the BR field,it warrants closer scrutiny.

22. After all, it was a revised version of the dissertation that earned Simon a PhD in politicalscience.


0

20

40

60

80

10 0

12 0

14 0

16 0

18 0

19 60 19 65 19 70 19 75 19 80 19 85 19 90 19 95

EconomicsHistoryPhilosophyPolitical ScienceSociology

Figure 3 “Bounded rationality,” by academic discipline (1956–95,five-year counts). This figure has not been adjusted for the total numberof entries in JSTOR, since these numbers exhibit a roughly linear trendthat does not affect the graph too much for our purposes. A normalizedfigure is available from the authors by request.

Within economics, the first articles in English to refer to the expres-sion appeared in 1967 (Day 1967; Williamson 1967). By the later 1980s,“bounded rationality” was firmly entrenched as a key economic concept,documented by its appearance in the main professional dictionary of thediscipline (Simon 1987). At about the same time, one can witness its in-creasing appearance in book titles, pioneered by Simon himself (1982),and followed by several others a decade later (Egidi, Marris, Simon,and Viale 1992; Sargent 1993; Rubinstein 1998; Gigerenzer and Selten2001).23

Once a text becomes a classic, one can expect it to be increasingly re-ferred to in passing, with little attention paid to its actual content. By the1990s, Administrative Behavior had become firmly established as thelocus classicus for “bounded rationality,” and various authors, includ-ing Simon himself, have begun reading it anachronistically into the first

23. According to the Dissertation Abstracts database available via http://www.umi.com, thefirst doctoral dissertation with the concept in its title was by Steve Fuller (1985), but it shouldbe noted that eleven years earlier, Carl Futia (1974) published a dissertation with “boundedlyrational” in the title.


edition even though it did not include the expression. For example, Si-mon (1991, 87) writes in his autobiography, when discussing the book,“The idea of bounded rationality . . . appears to be the most novel andoriginal component of the work.”24 Others also attribute the concept tothe first edition of Administrative Behavior. For instance, whereas Moe(1984)25 and Bendor and Hammond (1992)26 note that it was developedin the book, Ouchi and Wilkins (1985)27 and Beck, Rainey, and Traut(1990)28 do the same while mistakenly dating the manuscript in 1945.And despite the fact that Simon’s “A Behavioral Model of RationalChoice” (1955) talks of “boundaries” without containing “bounded ra-tionality” as a concept, Simon (1991, 165) notes in his autobiography,when covering the article, “Of all my writings on this topic, the ‘Be-havioral Model’ paper comes closest to the mathematical format withwhich economists are comfortable. Hence, economists who wish to re-fer to bounded rationality . . . most commonly choose this paper for ci-tation.” Others also make that attribution (Tversky and Kahneman 1981;Schoemaker 1982; Steiner 1983; Hirshleifer 1985).29

The qualitative shifts in the appearance of “bounded rationality” inthe economic literature discussed here so far throw an important light on

24. Simon (1991, 88) further notes that Administrative Behavior “was built around twointerrelated ideas that have been at the core of my whole intellectual activity: (1) human be-ings are able to achieve only a very bounded rationality, and (2) as one consequence of theircognitive limitations, they are prone to identify with subgoals.”

25. See Moe 1984, 743: “At the heart of Simon’s contribution is his model of boundedrationality, first developed and applied to organizations in Administrative Behavior (1947).”

26. See Bendor and Hammond 1992, 313: “In “Administrative Behavior,” Simon [1947]began with the premise that individuals are boundedly rational.”

27. See Ouchi and Wilkins 1985, 464–65: “The legitimation for combining a belief in or-ganizational rationality with the empirical observation of organizational nonrationality was of-fered by Herbert Simon in 1945. . . . With this idea of ‘bounded rationality,’ Simon providedthe basis for the coupling of the rational and the nonrational views of organizations.”

28. See Beck, Rainey, and Traut 1990, 72: “The work of Herbert Simon has long sinceestablished that decision making in organizations normally takes place under conditions oflimited cognitive capacity and information, such that the intended but bounded rationality ofdecision makers leads to satisficing rather than optimising.”

29. See Tversky and Kahneman 1981, 458: “Intellectual limitations [are] discussed by Si-mon [1955] under the heading of ‘bounded rationality.’” See Schoemaker 1982, 545: “Thebounded rationality view (Simon, 1955) of humans is that of an information processing sys-tem.” See Steiner 1983, 376: “The comprehensive nature of human reason has been challengedby the idea of bounded rationality [Simon 1955].” See Hirshleifer 1985, 61: “Under the head-ing of ‘bounded rationality,’ Herbert A. Simon (1955, 1959) has contended that a person facedwith a complex mental task will not attempt to strictly maximize, but will be content insteadmerely to ‘satisfice.’”


the changing status of the expression. From its initial occurrence as oneof several expressions that appeared in the BR field in the second half ofthe twentieth century, conceived by Simon as the vehicle to promote hisalternative conception of rationality, it gradually eclipsed alternative ex-pressions to become the central notion at the heart of the BR field. Thesteps along this way which we have recounted here portray a processof incremental institutionalization toward this dominant position. Thisbrings us to a brief overview of the more recent uses of “bounded ratio-nality” in a number of prominent branches of contemporary economics,such as transaction cost economics, game theory, and rational expecta-tions economics.

4. Further Diffusion: A Bird’s-Eye View

In this final historical section, we report more broadly on the fate of theconcept of bounded rationality in more recent times, once it had suc-cessfully become established as the dominant expression of the BR field.Starting from empirical and experimental counterevidence to the strongrationality assumptions employed in neoclassical economics, “boundedrationality” has been employed to formalize these departures and testpsychological predictions. This strand of research goes back to the workof Amos Tversky, Daniel Kahneman, Paul Slovic, and others (e.g., Kah-neman and Tversky 1974, 1979; Kahneman, Slovic, and Tversky 1982;Tversky and Kahneman 1987). Adopting the perspective of utility maxi-mization and Bayesian probability judgments, Kahneman, Tversky, andtheir followers evaluated the cognitive character of conformity or devi-ation from these benchmarks. Their contributions may be divided intothree areas: heuristics and biases, framing effects, and prospect theory.According to Colin Camerer (1999), “This sort of psychology provideda way to model bounded rationality which is more like standard eco-nomics than the more radical departure that Simon had in mind. Muchof behavioural economics consists of trying to incorporate this kind ofpsychology into economics.”

The broadening of “bounded rationality” can be further witnessed inthe contributions of Oliver Williamson (e.g., 1975) and of Richard Nel-son and Sidney Winter (e.g., 1982). In transaction cost economics, or-ganizational forms are regarded as implicit or explicit solutions to theproblems of decision and control created by opportunism and boundedrationality. Opportunism refers to the fact that there is conflict of interest


within, as well as between, organizations, and that participants in anorganization will lie, cheat, and steal in their own self-interest if theycan. Bounded rationality makes complete contracting infeasible becausenot everything can be known and there are limits to the capabilities ofdecision-makers for dealing with information and anticipating the fu-ture. However, Williamson has been reluctant to accept Simon’s notionof satisficing, primarily because he thought it would denote irrationalbehavior. At the same time, Simon himself considered satisficing to be aclose companion of the concept of bounded rationality.

Nelson and Winter have, like Williamson, regarded Simon’s work onbounded rationality as an inspiration for their own efforts. Yet, they toooffered an alternative interpretation of the concept in their research onan evolutionary theory of business firm growth. This theory emphasizesdifferential survival as a primary basis for changing populations of firms,and sees firms as surviving by virtue of their fit to the environment. Nel-son and Winter stressed the inability of firms to carry out the necessarycalculations for optimization, because the firm will not “know” all thethings of which it is capable, because all future contingencies cannot beforeseen, because mistakes can be made, and so forth. In Nelson andWinter’s view, the notion of satisficing can account for the persistenceof routines in their evolutionary theory. At the same time, they resistedincorporating organizational motives, an insight considered to be centralby Simon.

“Bounded rationality” has also appeared in game theory as well asin macroeconomics. Game theorists have tried to capture the effects ofbounded rationality by replacing rational players with computing de-vices such as Turing machines, finite automata, or neural network al-gorithms (e.g., Aumann 1981; Radner 1980). Yet, whereas Simon hadconsidered the concept of bounded rationality to be an alternative toneoclassical economics, game theorists have used it in an attempt tostrengthen it. For them, modeling players as being boundedly rationalpermits solutions to be reached that they want to obtain but cannot do sofrom fully rational players. In particular, the concept has been used in thearea of refinements of the Nash equilibrium, for the study of the applica-bility of the Folk Theorem, and on the problem of equilibrium selection.Much like game theorists, macroeconomists have adopted “bounded ra-tionality” in an effort to strengthen their mainstream insights (e.g., Brayand Kreps 1987; Sargent 1993). Sargent, for instance, has sought to rein-force rational expectations by focusing on convergence to an equilibrium


through boundedly rational learning. He also tried to use the concept todeal with some of the problems associated with rational expectations,such as multiple equilibria and the computation of equilibria.

It is thus an important aspect of the more recent use of “bounded ra-tionality” subsequent to its institutionalization as the core of the BR fieldthat an increasing number of literatures began to use it in ways not onlyincongruent with the initial motivation of Simon when he crafted it, butalso exhibiting significant cross-sectional divergence in interpretation.As we write, “bounded rationality” is being employed with numerousdifferent shades of meaning, and there is little indication of any conver-gence toward a dominant interpretation. All this has done little harm tothe use of the expression as the main currency for conceptualizing limi-tations to the decision-making capabilities of human actors.

5. Conclusion

Recent years have witnessed increasing appeals to bounded rationality.For instance, Thomas Sargent published Bounded Rationality in Macro-economics in 1993 and tried to make connections to Simon’s bounded ra-tionality contributions: “Herbert Simon and other advocates of ‘boundedrationality’ propose to create theories with behavioral foundations byeliminating the asymmetry that rational expectations builds in betweenthe agents in the model and the econometrician who is estimating it”(Sargent 1993, 21–22). However, whereas Sargent embraced neoclassi-cal theory and parallel adaptive computing systems, Simon dismissedneoclassical theory in favor of behavioral approaches and rejected par-allel systems in support of the serial symbol processing approach (Sent1997).

Bounded rationality has recently made its way into not only ratio-nal expectations approaches, but also game theoretic contributions. Yet,in the paper that stimulated research on modeling bounded rationalitythrough automata, game theorist Robert Aumann traced his suggestionback no further than Roy Radner’s insights. In particular, Aumann (1981,21) claimed that “finite memory has some conceptual ties to Radner’sbounded rationality.” On another occasion, Aumann (1986, 5) examinedhow bounded rationality approaches “have evolved over the past ten orfifteen years.” Only later did Aumann (1997, 3) make a connection be-tween his suggestion and Simon’s work: “To my knowledge, this areawas first extensively investigated by Herbert Simon.” These efforts give


rise to two paradoxical observations. First, whereas Simon saw boundedrationality as part of an alternative research program, game theorists em-ploy his ideas to further the prevailing orthodoxy. Second, in adoptingbounded rationality, game theorists find themselves in the position ofusing bounded rationality to define rationality (Sent 2004).

The rising interest in bounded rationality was evidenced by the ap-pearance in 1996 of a survey article by John Conlisk (1996) in the Jour-nal of Economic Literature that asked, “Why bounded rationality?”Whereas the JEL overview focused almost exclusively on the fifteenyears prior to its publication, we explored the emergence of “boundedrationality” over a much longer period. Rather than applauding or criti-cizing the appropriations on the part of rational expectations economistsand game theorists, we have studied the history of bounded rationalityfrom the perspective of the institutional approach to conceptual history,with a focus on the filiation of “bounded rationality” within its concep-tual field.

Between the embarrassment of riches of idealist conceptual historyand parochial word histories, we have attempted here to tread a middleground. The institutional approach to conceptual history proposed in thisessay recognizes that concepts do transcend specific expressions by con-centrating not on individual words as such but on conceptual fields. Atthe same time, its outlook is empirical in spirit, in an attempt to avoidthe anachronistic pitfalls inherent in intellectual history, proceeding onthe basis of a methodologically motivated agnosticism regarding the de-tailed interpretation of particular expressions. This allows us to combinethe heterogeneous range of meanings uncovered from the corpus into ahistorical narrative without having to impose a semantic continuity notwarranted by the close inspection of individual sources.

Having conducted our analysis of the BR field as a case study ofan approach to conceptual history novel to the history of economics,we are now able to take a step back to reflect more broadly on its out-comes. We have applied the middle-ground approach to the conceptualhistory of “bounded rationality.” Starting with the occurrence of “limitedintelligence” in 1840 and that of “finite intelligence” in 1880 and throughthe appearance of “incomplete,” “limited,” and “approximate” rational-ity during the first half of the previous century, we have developed a per-spective on the appearance of “bounded rationality” that interprets thisemergence in the context of the BR field. This perspective offers two newdimensions to what so far have simply been surveys of the literature onbounded rationality.


On the one hand, our perspective is diachronic on a large scale, span-ning more than a century. On the other hand, our approach has attendedin great detail to diachronic diversity of concept application, not justin terms of the increasing diversification of “bounded rationality” itselfbut also in terms of the field of concepts associated with it. It is herewhere we believe that studies such as ours of conceptual fields associ-ated with key economic concepts may offer valuable new insights intoconcept application in economics. It is part and parcel of what Jens C.Andvig (1991) has called the definitional mode of thinking in econom-ics to expect the semantic gradient of conceptual development to point inthe direction of convergent interpretations. While this may be the casefor some concepts, there is accumulating evidence that for an impor-tant class of economic concepts the opposite is true. They are better re-garded as systematically ambiguous and therefore characteristically—and not merely transitorily—ill defined (Klaes 2000, 2003b, 2004). Infact, the historical challenge seems to consist less of coming up with fur-ther systematically ambiguous expressions than of locating well-definedand commonly accepted concepts.

Systematically ambiguous concepts arguably play an important rolein economic discourse. As they become institutionalized they serve asfocal markers of broadening conceptual fields of overlapping under-standings. These fields exhibit their own dynamic as different expres-sions compete for dominance. During our heuristic search, we learnedthat both “finite intelligence” and “approximate rationality” sufferedthrough a process of conceptual fading, in which the expressions grad-ually ceased to be used. “Limited intelligence” exhibited a conceptualrenaissance when the hitherto marginal expression acquired a specificinterpretation. Finally, we witnessed conceptual switching from “intelli-gence” to “rationality” from the nineteenth to the twentieth century, dur-ing which the use of one concept was discontinued in favor of another.

We pointed to the pivotal position of the paper by Hilda Oakeley(1922), which, in a serendipitous way, opened up new bridges amongestablished and emerging expressions in the BR field. By contrast, ourstudy of Simon’s endeavors in coming up with a suitable term to act asthe vehicle for his theory of decision-making clearly indicated to whatextent the development of conceptual fields is open to conscious inter-vention. What Simon did was to develop “bounded rationality” as theresult of ongoing experimentation with competing expressions drawnfrom the conceptual field that, through a series of writings over a period


of about ten years, finally crystallized in a focal expression. In the pro-cess, he appealed to “limited rationality” and “approximate rationality,”which had both earlier occurred in political discourse, before settling on“bounded rationality.” While refining and replacing the original expres-sions, Simon tentatively connected “boundary” and “rationality” intothe concept that has been the main focus of our article. His endeavorswere strengthened by his appeals to the concept as a principle. Finally,we gave an overview of the subsequent diffusion of the concept. Dur-ing this process, others translated “bounded rationality” in novel waysand started using it in their writings.30 We drew attention to the fact thatthe emergence of “bounded rationality” was initially largely due to itsreception in political science.

What we find remarkable about Thomas Sargent’s appeals to boundedrationality is that he apparently felt obliged to connect the concept withHerbert Simon’s contributions. In response, we are interested in tracingwords in the first instance, rather than people and their ideas. What wefind fascinating about Robert Aumann’s observations is that he seem-ingly had little interest in its earlier engineering, but sought to linkbounded rationality with Roy Radner’s insights. In response, the insti-tutional approach to conceptual history focuses on the evolving hetero-geneity of the expression. What we find intriguing about John Conlisk’ssurvey is that he presumably felt no compulsion to cover the content ofthe concept. In response, conceptual history traces the conceptual fieldfrom which the concept emerged. As such, it uncovers linkages, net-works, and processes that might otherwise escape the attention of his-torians of economics.

With the increasing ease with which full-text electronic records of his-torical sources become available, the historiographic method introducedhere may find application in other studies of the stabilization of con-cepts in the history of economics. We hope that the present case-studyhas gone some way in illustrating the potential of alternative approachesto the history of economic concepts. Ours being a middle-ground po-sition, what we would like to see is less an abandoning of traditionalhistory of ideas than its enrichment with an empirically minded outlookon the institutionalization of economic discourse.

30. We hesitate to speculate that the emergence of “bounded rationality” as the prevalentexpression in the field is due to Simon’s ascendancy, Williamson’s adoption of the concept, andsubsequent bandwagon effects, for this would require additional social history evaluations thatfall outside the scope of our paper.


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Documents

A Conceptual History of the Emergence of Bounded Rationalityorganizing our data: Lisa Demidovich, Justin Dubas, Thomas Scheiding, and Courtney Zinter. Esther-Mirjam Sent would like