Th e Evolution of Decision Th eory 173
(1991) on tightly coupled high-reliability systems illustrates the decision logic
of appropriateness.
Bounded Rationality
Rather than describing rationality, both forms of decision logic in fact describe
limited or bounded rationality.
Pure rationality is an artifact of analysts’ assumptions. Decision-theoretic
modeling usually includes at least some assumptions, such as agreement regard-
ing objectives or values; perfect or, at least, highly developed knowledge of al-
ternatives; and the known consequences of applying alternatives. By using such
assumptions, the prediction of either individual or institutional decision behavior
and the results of that behavior tend to be highly generalized, usually described
as modalities or tendencies. Such models are oft en tested in experimental set-
tings in which variables can be controlled and manipulated and assumptions
changed. Th e long series of prisoners’ dilemma experiments and other fi eld tests
of game theory, subjects covered in more detail later in this chapter, illustrate this
research (Milgrom and Roberts 1992; Rasmussen 1990). Ordinarily, rather than
claiming to explain rational decision behavior in complex organizational settings,
this research claims to provide insight or to have heuristic qualities. Perhaps the
strongest results gained from experimental tests of “pure” rationality are found
in the research on individual and institutional tendencies to cooperate (Axelrod
1984; Brown 1995) or compete (Hirschleifer and Riley 1992). Th e generalities and
insights tracing to experimental tests of rational decision behavior under some
“pure” assumptions are promising, particularly in the extent to which they expli-
cate the bounds of rationality. But such models are less than satisfactory descrip-
tions of how decisions actually happen (March 1994, 5). We turn, then, to limited
or bounded rationality in decision theory.
In a rational decision theory framework, the key questions, problems, and
challenges all have to do with the limits of rationality. How is decision rational-
ity bounded? We suggest that the closer decision theorists come to measuring
and describing the limits of rationality, the closer they come to credible repre-
sentations of how decisions actually happen. More importantly, the closer deci-
sion theorists come to accurate descriptions of decision behavior, the more likely
they are to improve the capabilities of decisionmakers and the results of their
decisions. Th e recent emphasis in behavioral economics on using experiments
to explicate patterns of boundedness or “irrationality” is a step in the right direc-
tion (Camerer, Lowenstein, and Rabin 2004; Kahneman 2011). We return to this
point in Chapter 8.
Th ose rational choice theorists inclined toward pure decision theory as well
as to the logic of consequences now accept limited rationality and tend to refer
to individuals and organizations as “intendedly rational.” In spite of their best
eff orts to be rational, decisionmakers, individually and especially collectively, are