Bounded Rationality, Heuristics, Computational Complexity, and Artificial Intelligence

Abstract

Herbert A. Simon and Alan Newell won the Turing Award jointly in Computer Science for foundational work on Artificial Intelligence. Simon also won the Nobel Prize in Economics for the concept of “bounded rationality.” In both cases, the same heuristic was deemed fundamental: “Search till a satisfactory solution is found.” We argue that behavioral strategy can learn a great deal from the Theory of Computational Complexity and Artificial Intelligence. These fields can provide a sounder theoretical grounding for bounded rationality and for the necessity and usefulness of heuristics. Finally, a concept of “organizational intractability” based roughly on the metaphor provided by the Theory of Computational Complexity may be useful in determining what analytical decision technologies are actually intractable in real organizations with constraints on time and managerial attention.

Keywords: bounded rationality, heuristics, computational complexity, behavioral strategy