Costs and Benefits
of
Bounded Rationality
Hart E. Posen
University of Michigan
Images of
Rationality
Intendedly Rational
Homo economicus?
Carnegie School
Tradition
• Organizations as boundedly
rational actors – which has
become a cornerstone of
organization theory.
• Takes seriously bounded
rationality – and the
implication that organizations
engage in search and learning
in order to identify sufficiently
good choices.
Embracing
Bounded Rationality
Interdependence
Complexity
Search
Adaptation
Aspirations
Cognition
Our Objective
To take a new – and perhaps even
unconventional – look at the
consequences of bounded
rationality.
Our focus is on bounded rationality
not only as a performancedegrading impediment that must be
overcome, but also as a mechanism
that potentially leads to superior
outcomes.
Costs and Benefits of Bounded Rationality
 Siggelkow (with Martignoni):

Benefits of
Bounded
Rationality
Mental maps and
Imitation
“When it Pays to be Neurotic or to Have Blind Spots”

Benefits of over and underspecified mental models
 Posen (with Lee and Yi)
 Power of Imperfect Imitation
 Boundedly rational imitation generate better outcomes than
fully rational imitation.
 Csaszar
Costs of
Bounded
Rationality
Role of
Organizational
Structure
 Organizational Structure as a Determinant of Performance

How to create reliable organizations out of unreliable
individuals
 Lee (with Lee, Lee, and Braha)
 Learning in Complex Systems

Bureaucratic structure enhances learning