Prices and knowledge: A market-process perspective

70 Prices and knowledgeThus the simplification is not—and cannot be—done, as is assumed inan optimizing approach, after evaluating all the potentially availableinformation, however vaguely the latter might be supposed to beknown.SOME SIMPLIFYING DEVICESTwo of the devices Simon identifies that reduce the complexity ofdecision problems, making them manageable for individuals, will beconsidered here: (1) at the individual level, the procedure Simon hasnamed ‘satisficing’ (arguably his most renowned contribution toeconomics) and (2), at the social level, ‘the combined use of marketsand administrative hierarchies.’ The idea of ‘satisficing’, not crucialfor present purposes, will be briefly described to help understandbounded rationality.Satisficing and aspiration levels‘Satisficing’ simplifies the agents’ choice problem by having themlook for an alternative that is satisfactory, or good enough, rather thanbest, or optimal. 18 Instead of having the individual scan through all theavailable alternatives, satisficing requires him only to search until hefinds one that, in Simon’s words, meets his ‘aspiration level’.As an example of how this procedure is supposed to operate,Simon (1978a:468) provides the following:If needles are distributed randomly in a haystack of size, H, with anaverage density of distribution, d, then to find the sharpest needle inthe stack, we have to search the entire stack, and the search timewill vary with H. Search time will be linear with size, which doesnot seem too bad until we remember that the haystack of life isessentially infinite.If we are satisfied with any needle, however (after all, they are allsharp enough to sew with), then the amount of search to find one willvary with d—that is, will be independent of the size of the stack.According to Simon, man will satisfice at two decision stages:1. When deciding whether to search for alternatives. The agentwill not search for alternatives as long as his present one meets his