Bounded Rationality and the History of Knowledge

A Frontier in the History of Knowledge

In September 2021, Peter Burke gave a talk at Lund University in which he spoke about the challenges that historians of knowledge face as we attempt to understand not only what was known in the past, but what people did with their knowledge. One approach to this puzzle, he suggested, lies in studying decision-making. If we assume that people have at least some control over their actions, then decisions are among the most significant, and common, situations in which what we know interacts with what we do. Decision-making is, thus, not only a proper subject for political or economic historians but also for historians of knowledge. If we are to pursue this insight, we must either develop tools of our own for studying decision-making, or borrow existing tools from adjacent disciplines. Considering the tools available for investigating these subjects, Burke said, he was most attracted to bounded rationality. But what is bounded rationality, and how can we apply it to our research?

Definitions of bounded rationality can be slippery, so I will return to this issue below; but first, I will set out some aims for this blogpost. In what follows, I will use an example from my own research (Reformation-era education policy) to illustrate three key points about bounded rationality: First, bounded rationality provides a psychologically and institutionally plausible account of the practical use of knowledge by historical actors—neither naively accepting firsthand accounts of motivations nor cynically ascribing historical behaviors to greed, prejudice, or ignorance. Second, this anachronistic term, if used with care and precision, can reveal continuities and similarities in decision-making in different periods. Third, it can be a novel and useful way to highlight reciprocal relationships between the history of knowledge and other branches of historical research.

With these general objectives in mind, a brief note is also needed on our present case study. By using this example, I do not mean to imply that the Reformation or education policy are areas particularly well suited to this kind of analysis. On the contrary, I aim to illustrate how bounded rationality illuminates a wide range of historical questions, including those remote from the twentieth-century economic setting in which the concept originated.

Nonetheless, there are reasons that education policy during the Reformation makes a good test case. The clear goals of education reformers, combined with good evidence for their results and documentation of the political process, offer multiple points at which bounded rationality may clarify our understanding of how decisions were made.

To historians of the twentieth and twenty-first centuries, this may all seem to come a little late. Of necessity, modernist historians have engaged with bounded rationality and related concepts because those same theories were available directly to their twentieth- and twenty-first-century subjects. To name but a few, Matteo Cristofaro,¹ Heinrich Hartmann,² Esther-Mirjam Sent,³ and Viteslav Sommer⁴ have each considered questions of economic and political rationality (bounded or otherwise) in the modern period. In historical studies from earlier eras, the situation is different. We must ask whether bounded rationality has a place in periods that predate the term, or whether, in describing and naming it, twentieth-century academics called the phenomenon into being.

What Is Bounded Rationality?

Bounded rationality, in its simplest form, is the idea that, although human decision-making might aspire to rationality, it never quite realizes this aspiration in the real world. Decision-makers inevitably run up against the limits of cognition and organization. If that characterization seems overly general, it is supposed to. Herbert Simon, who coined the term, explained its seeming vagueness as follows: “[Bounded rationality] is indeed vague, until it is filled up with concrete empirical knowledge about how human decisions are actually made.”⁵

With these words, Simon captured the promise and the project of bounded rationality: on the one hand, to fashion an account of human decision-making that resembles the real thing, and, on the other, to document enough real-world case studies to establish where the bounds to rationality lie in different circumstances.

When Simon first began to write about bounded rationality—along with his colleague James March—his focus was on decisions’ organizational bounds.⁶ He began his career as a scholar of government, so it is no surprise that one of his first insights about how decisions are made in the real world was that very few of them are psychological processes in the mind of a lone decision-maker. Instead, Simon saw decisions as administrative processes within organizations. He envisioned bounded rationality not only as a product of the human body and its physiological limits but also of the boundaries within institutions and organizations where decisions are made.⁷

Historians have long been skeptical of psychologizing historical subjects, so if history has anything to learn from or contribute to bounded rationality, the greatest potential lies in this institutional setting. Indeed, New Institutional Economics, which descends from Simon’s work, has long been popular and influential in historical research, suggesting there may be some latent interest in questions of bounded rationality among historians.

Bounded Rationality in the Reformation?

In the Hanseatic cities, schooling at the turn of the sixteenth century was brief, pragmatic, and confined to a narrow section of society. Over the course of that century, education policy would change significantly. By mid-century, every major Hanseatic city had seen new schools founded: Bremen in 1528, Hamburg in 1529, Lübeck in 1531, and Danzig (Gdansk) in 1558. We know, therefore, that urban governments were making decisions to reform formal education, but can bounded rationality improve our understanding of those decisions?

Formal education had not been a major part of medieval Hanseatic culture. Schooling was a matter of pragmatic literacy and numeracy, to be dispensed with by the early teenage years in favor of on-the-job learning. It was usually the responsibility of Catholic institutions, which collapsed as the cities embraced the Reformation. Consequently, Reformation-era school reformers often had a more-or-less blank slate to build on, and we can compare what they wanted to create with what they did create to get a sense of the limits of their decision-making.

In his classic account of boundedly rational decision-making, Simon characterized decisions as constructed from “premises.”⁸ These included “value premises” (statements about the decision-maker’s aims and preferences) and “factual premises” (statements about the world). Deciding rationally, for Simon, was the process of bringing such statements together and analyzing them to generate a range of actions and plausible outcomes. A perfectly rational actor would strike the right balance every time. Real decision-makers, of course, do not. With bounded rationality, one must attempt to reconstruct this analytical process, in part by understanding what premises were in play, and in part by tracing the contours of the process itself.

Premises, Decisions, and Knowledge

Let us begin with the role of value premises. If one looks at the theoretical texts on Protestant education, there is little ambiguity about their values. In its title alone, Luther’s 1524 treatise, To the Councilors of All Cities in the German Lands: That They Establish and Maintain Christian Schools, left little room for misunderstanding.⁹

Philip Melanchthon, too, placed responsibility for education squarely with urban officials. “Only that city is to be considered upright,” he wrote, “in which the understanding of God and the knowledge of the other honorable arts are added to the political system.” He also set a high bar for failing to live up to his vision of Reformation, predicting divine wrath for those who neglected educational reform:

We have seen … madmen with fanatical opinions, punished for their errors. Consider those mad in the same way, who disturb the chorus and the harmony of the arts … just as when you think of the elements of writing you believe that the entire alphabet is necessary for discourse, so you will consider all the disciplines that are taught in the schools necessary for life.¹⁰

The value premises of Reformation education policy were, thus, clearly set. But, as Gerald Strauss well knew half a century ago, the gap between theory and practice in Lutheran education could be vast.¹¹ The private papers of officials responsible for education further reveal how ordering value premises in a complex organization has endured as a limit to decision-making.¹²

In the first instance, there was the problem of unifying the values of councilors who were fully on board with the Reformation project with the values of those who had reservations. Some, like Daniel von Büren of Bremen, had studied in Wittenberg and returned home zealous adherents of the Reformation. Others, like Johann Brockes of Lübeck, were more hesitant. “He was not disinclined to education,” observed Brockes’s son, “On the other hand, he saw that education required a lot of money and that few Lübeck children fared well in studying.”¹³

Rational decisions are conventionally (though not universally) seen to require stable hierarchies of preferences.¹⁴ The governments of Hanseatic cities, however, took little account of ideology or opinion when appointing their members. Therefore, with such a wide range of value premises in play, this kind of stable hierarchy was difficult to maintain. Instead, values shifted as decisions were made, which may help us to understand the erratic and uneven dedication of time and resources to education often attested in primary sources and documented in histories of early Lutheran education.

The rationality of Hanseatic policymakers was also bounded by so-called factual premises. By factual premises, Simon did not mean premises that were absolutely true in any abstract sense but simply those that related to the availability and understanding of information. A government creating a new institution with a specialist purpose, like a school system, is always at an informational disadvantage. The specialists—in this case teachers—know more about the institution than the politicians, but the politicians are the ones who must make the decisions.

On both sides there were concerns about this problem. In the surviving school ordinances from Bremen, for instance, fully half of the preface is concerned with oversight and the council’s control over the inspector general of schools.¹⁵ Sensitive to the asymmetry in information between the council and the schoolmasters, the decisions it made took on a dual focus. On the one hand, council members accepted the limits to their knowledge by granting the schools some autonomy; on the other hand, they sought to mitigate the risks involved by setting up tools for information gathering.

The schoolmasters, in turn, contributed their own set of factual premises. They were influential in ensuring the city’s school ordinances went into great detail, stipulating which works and which authors were to be taught, to which students, and using which methods. This specificity protected them from political interference but also created an environment in which curricula were inflexible and slow to change.

The legacy of this institutional set-up, in which decisions were negotiated between two parties with asymmetrical access to information, is clear in the writings of Gerhard Meier. Writing at the centenary of the school reforms discussed above, Meier dedicated his history of education in Bremen to the city council and presented, for the most part, a narrative of progress: He wrote of “our public schools, workshops of letters and universal learning, established under [the government’s] auspices, and hitherto increased and sustained.” One may also infer from his preface, however, that he felt some frustration at the decline of the ambitious education policy since the early days of the Reformation.¹⁶

Bounded rationality suggests an interpretation of the change Meier identifies: The asymmetry of factual premises, and difficulty communicating between the highly educated, often foreign, schoolmasters and the merchants who dominated the political offices, made for an anxious mode of decision-making. Decisions became concerned with controlling potentially influential schoolmasters rather than with “the harmony of the arts.” Nor were councilors able to reconcile Luther’s insistence on a wide-reaching education system with other value premises, like the need for stability or maintenance of their own authority. Thus, while education did change rapidly in the Reformation, it was neither as rigorous nor as widespread as the educational writers of the period had called for.

Conclusion

The short illustration given above is, of course, a mere sketch of how bounded rationality may be relevant to historical research. In closing, I would, therefore, like to reiterate the main contributions that bounded rationality can make to historical research, and to the history of knowledge, in particular.

First, it offers a new lens through which we can examine the often mysterious gap between theory and practice in political action. By approaching decisions as premise-based structures, we can bring greater analytical precision to the vague realm of motivation. Considering political action in terms of the value premises that were part of decisions, we can clarify how shared hierarchies of preferences were negotiated within institutions, and how these set the context in which those institutions could act. Second, bounded rationality can illuminate how knowledge is integrated into decision-making (or, conversely, how it is excluded from it). It can help us to identify where knowledge is situated within a complex organization like a city government. It also clarifies where boundaries to knowledge transmission existed in decision-making processes. This emphasis on structures of knowledge transmission and decision-making can assist historians in drawing parallels between disparate institutions in different periods or locations.

Finally, because of its focus on the gap between norms of rationally applied knowledge and the limits of such norms in practice, bounded rationality provides a context in which the history of knowledge can connect with and contribute to political, economic, and other histories. Consequently, it may be a useful tool with which to demonstrate that a history of knowledge perspective can make valuable contributions to research questions beyond histories of scholarship and intellectual life.

Alexander Collin is a PhD candidate at the University of Amsterdam, where he works on northern Europe from the 1490s to the 1700s. His PhD project, whose theme is tied closely to this blogpost, has been funded by the Leverhulme Trust and the Deutscher Akademischer Austauschdienst.

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1. Matteo Cristofaro, “Herbert Simon’s Bounded Rationality: Its Historical Evolution in Management and Cross-fertilizing Contribution,” Journal of Management History 23, no. 2 (2017): 170–90. ↩︎
2. Heinrich Hartmann, “Gezähltes Verhalten. Behavioralismus als statistisches Paradigma der Modernisierung zwischen den 1950er und 1970er Jahren,” in Die Zählung der Welt. Kulturgeschichte der Statistik, ed. N. Bilo, M. Schneider, and S. Haas, 233–53 (Stuttgart, 2018). ↩︎
3. Esther-Mirjam Sent, “Rationality and Bounded Rationality: You Can’t Have One without the Other,” European Journal of the History of Economic Thought 25, no. 6 (2018): 1370–86. ↩︎
4. Vítězslav Sommer, “Towards Expert Governance: Social Scientific Expertise and the Socialist State in Czechoslovakia, 1950s–1980s,” Serendipities: Journal for the Sociology and History of the Social Sciences 1, no. 2 (2016): 138–57. ↩︎
5. Herbert Simon, Models of Bounded Rationality, Vol. 3 (Cambridge, MA, 1997). ↩︎
6. James March and Herbert Simon, Organisations, 2nd ed. (London, 1993). ↩︎
7. The psychological side of bounded rationality has enjoyed significantly more public attention than the institutional side in recent years, thanks, in particular, to the fame of Daniel Kahneman, who cited Simon as in important influence and inspiration; Daniel Kahneman, Thinking Fast and Slow (London/New York, 2012); idem, “Nobel Lecture: Maps of Bounded Rationality” (2002). ↩︎
8. Herbert Simon, Administrative Behavior, 4th ed. (New York, 1997); this concept was also taken up by the influential German scholar of decision-making Niklas Luhmann in his Organization and Decision (Cambridge, UK, 2018). ↩︎
9. Martin Luther, An die Radherrn aller stedte deutsches lands: das sie Christliche schulen auffrichten vnd hallten sollen (Wittenberg, 1524). The title translation is my own. ↩︎
10. Philipp Melanchthon, Melanchthon: Orations on Philosophy and Education, ed. Sachiko Kusukawa, trans. Christine Salazar (Cambridge, UK, 1999). ↩︎
11. Gerald Strauss, Luther’s House of Learning: Indoctrination of the Young in the German Reformation (Baltimore, 1978). ↩︎
12. Bremen State Archive Series 2-P.6.b Ratsherren, Senatoren, Bürgermeister. ↩︎
13. Heinrich Brockes, “Aus dem Tagebuche des Lübeckischen Bürgermeisters Henrich Brockes,” ed. C. W. Pauli, Zeitschrift des Vereins für Lübeckische Geschichte und Altertumskunde 1 (1860). ↩︎
14. More technically, this “stability” is what is called weak order and was first proposed as a characteristic of rational decision-making by mathematician and decision scholar L. J. Savage. For an overview of Savage’s argument and its critics, see Jake Chandler, “Descriptive Decision Theory,” in Stanford Encyclopedia of Philosophy. ↩︎
15. Bremen State Archive, 2-T.5.a.17. ↩︎
16. Gerhard Meier, Orationes de Scholæ Bremensis Natalitiis, Progressu, et Incremento (1684). ↩︎

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