Prices and knowledge: A market-process perspective

68 Prices and knowledgerich’ world (Simon 1970:167). In such a world ‘a wealth ofinformation creates a poverty of attention’ for individuals withbounded rationality (Simon 1971:173). The problem for individuals isnot the acquisition of information. Instead, it is to possessarrangements that will act as ‘buffers’ against irrelevant informationthat would distract their scarce attention. 12 (These arrangements, it canbe added, need not be deliberately designed.) The problem becomesone of conserving and effectively allocating this scarce element(Simon 1971:174). (As will be seen, this allocation, in Simon’sperspective, cannot be put in the usual terms of equating the marginalcosts and benefits of directing attention to a specific area.) Simon’sidea of an ‘information-rich’ world is not without problems, but itprovides another example of the difficulties he believes are faced byindividuals with bounded rationality. 13The consequences of bounded rationalitySimon argues that in reality it is generally not possible for humanbeings to optimize as neoclassical theory assumes they do. Given thecomplexity of man’s environment and his limited informationprocessingcapabilities, ‘no procedure that he can carry out with hisinformation processing equipment will enable him to discover theoptimal solution’ (Simon 1976:430). Simon’s point is not merely thatagents do not seem to be optimizing. He says that, because of theirknown computational limitations, they cannot be doing so in mostreal-world situations. Without this last argument his position would beopen to the suggestion that individuals may be making what Baumoland Quandt (1964) have called ‘optimally imperfect’ decisions. 14Although modern computers have, in Simon’s (1976:430) view,enlarged the area within which man’s computational capacity matchesthe complexity of the world, this area is still very small. 15 Therefore,Simon (1959:259–60) argues, human beings, who act quite reasonably(or successfully) in reality, must be engaging in something else than(neoclassical) optimizing. Simon’s (1955:243) suggestion is that oneshould observe how human actors actually proceed in reality to obtainan alternative explanation of their reasonable behaviour in a complexworld. (This is the ‘behavioural’ element in his work.)A sensible way in which bounded-rationality individuals coulddeal with a complex world, Simon suggests, is through the adoptionof simplifying devices. In his observations, for example, he finds that