“Perfection does not exist”: we all agree on that. However, many of us, the most reflective ones in particular, tend to wait until the very last moment before making important decisions in the hope of finding the perfect one. As a result, every relevant decision is accompanied by overthinking and anxiety about choosing the wrong option. But what if I told you the strategy of a Nobel Prize winning economist, H.A. Simon, might change your point of view?
When it comes to decision-making, Simon suggests looking for a reasonable and attainable result rather than aiming for “the optimal solution”. On the other hand, we live in a world of limited resources, while making the perfect choice implies having access to endless information and time. A perfect result is therefore not possible and, even if it was, the effort of pursuing it would probably outweigh the reached outcome.
For a long time, economists only took into account perfectly rational individuals whose goal was maximizing utility. That is why “Satisficing” was so revolutionary: the concept of “bounded rationality” was introduced for the first time. Human beings are “satisfiers”, irrational agents whose choices are constantly influenced by limited information and time constraints.
Simon’s strategy has a huge potential as far as business related decisions are concerned. For instance, an organization may invest months in looking for the best possible candidate, or they could opt to select the first one who meets their minimum requirements. On one side, they would have probably reached a better outcome, on the other side much more effort (and money) would have been required.
Another example (which is represented in the graph above) regards the profitability of a company. The optimal quantity a company should produce must respect two conditions. First of all, the marginal costs (MC) to produce it must be as high as the marginal revenue (MR) the company is going to earn from it. Secondly, the price the chosen quantity will be sold (P) must be higher than the average costs to produce it (AC). However, there are lots of quantities, apart from the optimal one, which a company can produce in order to reach profit (they are marked as “Satisficing” in the graph). Is it really worth investing so much time and effort in finding the optimal quantity to produce or is it more desirable to settle for a “fairly good” option?
The same question might be applied to our personal life. For instance, if a student who is about to graduate from high school really had to choose the best possible university to attend, they would have to look for complete information about all existing university courses (in their own country and abroad), find all the subjects these courses contain and, afterwords, look for the best possible university to take part in the one they are interested in. Furthermore, they would have to be rational and self-conscious enough to be able to express their preference among all possible options.
As Simon’s theory suggests, it would be much easier for that student to come up with a list of 5 university degrees they are interested in and choose one among them with the awareness that they are all acceptable choices. For instance, a student can be almost equally interested in “economics”, “law”, “journalism”, “science” and “philosophy”. At this point, they could invest their time and energy in maximizing utility and finding the most suitable course for them, or they could settle for an acceptable decision. According to Simon’s theory, the second option would be preferable. There is no point in struggling: they may become equally good economists, lawyers, journalists, scientists and philosophers.
That is why satisfiers are usually happier than maximizers. Another college related example was explained by an American study. It has been noticed that recent college graduates with high maximizing tendencies accepted jobs that paid 20% higher starting salaries than their satisficing peers. However, these maximizing students were less satisfied with the jobs they accepted. A possible explanation is that maximizers, once they have made a choice, are likely to second guess themselves and wonder whether they could have made a better choice. Furthermore, they are more prone to making social comparisons in order to gauge the optimality of their decisions.
In conclusion, Simon’s revolutionary theory shows that is that there is not only one path, “the optimal one”, to reach happiness and gratification (on a personal level) or profit and success (for business related decisions) but a huge number of options we sometimes do not even know much about. Sometimes, all we need is to stop overthinking and take action.
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