Herbert Simon Bounded Rational Theory Case Study
The government of India had actually three policy choices to be made -
Policy 1- whether to completely go for cash transfer for all the social welfare programs
(including for food distribution).
Policy 2- whether to continue with the existing “in kind” subsidies and no cash transfer.
Policy 3- whether to partially go for cash transfer for some benefits like scholarship, old
age pension etc and continue with existing system of public distribution system(pds) for
distributing food grains only.
According to’ Herbert Simon’s’ bounded rational theory the policy maker would know that
distributing cash directly to the beneficiary account instead of selling …show more content…
Rational model: is a economic model of decision making which is based on cost benefit
analysis. This is also referred as root model of decision making. The emphasis here is to
access all the information relevant to the problem and based on this data all the alternatives to
be constructed. Based on the accurate predictive power, the relative effectiveness of each of
these alternatives to be established and to choose the one best among the rest.
But ‘Herbert Simon’ had reservations about this rational model. It is simply not real for an
individual to know the consequences of all the alternatives. So simon says decisions are
bounded rational. Decisions are satisficing rather than maximising. As explained above
the policy maker of the cash transfer scheme had only four alternatives (choices) whose
advantages and disadvantages were known to him. It was impossible for a decision maker to
have infinite alternatives in front of him and predict the consequences of all the alternatives.
So here (cash transfer scheme) the criteria of efficiency was used rather than criteria of
adequacy in decision making.
LAW (how authority is sought and