Conventions in Herbert Simon’s theory of bounded rationality

Journal of Economic Psychology 30 (2009) 293–306

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Conventions in Herbert Simon’s theory of bounded rationality Rouslan Koumakhov * Reims Management School, 59, rue Pierre Taittinger, BP 302, 51061 Reims Cedex, France EconomiX - Université Paris 10, 200 rue de la République, 92001 Nanterre Cedex, France

a r t i c l e

i n f o

Article history: Received 16 July 2006 Received in revised form 1 February 2009 Accepted 2 March 2009 Available online 9 March 2009

JEL classification: B41 D00 D23 D80 Z13

a b s t r a c t This paper offers a reconstruction of Herbert Simon’s decision theory from the conventionalist point of view. It is argued that Simon defined two types of conventions in organizational settings: the first one was specified as a set of customary rules in the workplace, the second one as a shared cognitive model of reality. This paper emphasizes the importance of that approach for economic psychology and its connections with T. Schelling’s project of the reorientation of the game theory. The implication of revisiting Simon from the conventionalist viewpoint is that not only may such an approach provide a solution to coordination problems, which is psychologically reliable, but it also leads to a decision paradigm, according to which understanding problems of coordination is impossible without taking into consideration individual cognitive limits and social representations of reality. Ó 2009 Elsevier B.V. All rights reserved.

PsycINFO classification: 2340 2630 2910 3000 3660 Keywords: Bounded rationality Organizational behavior Coordination problems Conventions Mental representations

‘‘If (. . .) we accept the proposition that both the knowledge and the computational power of the decision maker are severely limited, then we must distinguish between the real world and the actor’s perception of it and reasoning about it”. (H. Simon, 1986, p. S211)

1. Introduction Students aged 27–45, coming from different countries and continents, with diverse educational and professional experiences, compose my International MBA classes. Each year, I ask them: ‘‘Suppose we now take a photo of our class, which will * Tel.: +33 (0)3 26 77 46 35. E-mail address: [email protected] 0167-4870/$ - see front matter Ó 2009 Elsevier B.V. All rights reserved. doi:10.1016/j.joep.2009.03.001

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be shown to your children in 30 years time, what will they say?” After a short discussion, the answer is ‘‘They will say we all look alike”, just as we do when looking at the old pictures of our own parents or grandparents. Students conclude that in spite of all our personal and cultural differences, we (teacher included) share some common physical features. This may concern dress style, haircut, facial expression or just some detail in our appearance. In other words, there is a kind of standard look, which we consciously or unconsciously comply with. We might not recognize this standard today, but our children certainly will, especially if that standard should change or disappear in the meantime. Thus, appearance standards are part of the social conventions, which influence the behavior of most people. Those conventions are important devices enabling people to coordinate their actions and at the same time preserve a lot of their cognitive energy and public resources. Because people themselves may not be fully aware of relying on convention when making decisions, it is not obvious to what extent such reliance is intention-based and implies rationality. For these reasons, dress style as an example of behavioral conventions is an interesting object in the study of mental mechanisms allowing people to cooperate as, for instance shown in Schelling’s work (1960). This is not the end of the story. That classroom photograph mental experience is an object of frequent discussions with friends. Though they have a richer life experience than my students, they seem to agree with our classroom conclusions. Sometimes, however, the practical advice I give my students – ‘‘because all this is just a historically grounded convention, one should not consider one’s present day look ridiculous when seeing that photograph in the future” – leads to discussion. Actually, some people feel deep regrets when seeing old photographs of themselves. The ‘‘70s” look for them was not merely a matter of behavioral codes or generalized fashion, but had a much stronger and consciously acknowledged ideological meaning. Such a look reflected their global values concerning the vision people had of the world and their place in it. Typically, there are two opposite reasons for regret. For some people, such values were not only naïve, but even dangerous so that the image of their past appearance as a reflection of those values makes them feel uneasy. For others, they see the same values as basically correct and their own evolution as nearly treason with regard to those ‘‘true” values – and this feeling is especially strong when they view those pictures. Thus, what seemed to be a simple matter of fashion comes out to actually be deep-rooted in a common system of ideological, ethical and identificational values or beliefs. My argument is that both parts of this story exemplify some key issues in decision and coordination processes. Such issues imply conventional phenomena that are relevant to different fields of economic psychology. Two types of conventions may be distinguished here: (a) conventional rules of behavior demonstrated in the classroom mental experience (first part of the story) and (b) conventional representation of the world revealed in the following discussions with ‘‘experienced” friends (second part). This article will try to show that a convention of the type (a) is directly or indirectly grounded in a convention of the type (b), thus providing an explanation of the successful coordination people demonstrate in everyday life and in experimental games. To show the importance of those conventional phenomena in economic decision-making, the present paper relies on a reconstruction of Herbert Simon’s theory of bounded rationality. It tries to demonstrate that this theory appeals to coordination devices, which are typically ignored in the traditional fields of conventionalist analysis – game-theoretic models in economics or philosophy. Whether Simon’s account of bounded rationality is a sort of conventionalism will be discussed from the perspective developed by the French School of Economics of Conventions (FSEC) (Dupuy, 1989; Eymard-Duvernay, 1997; Favereau, 1986, 2001, 2008). The startling implication of revisiting Simon from that viewpoint is that not only may such an approach provide a solution to coordination problems, which is psychologically reliable, but it also helps to understand the idea of double-phase decision mechanism shaped by Simon. Furthermore, Simon’s conventionalism leads to a decision paradigm, according to which understanding problems of coordination is impossible without taking into consideration individual cognitive limits and social representations of reality. To emphasize the key role of conventionalist issues in Simon, the demonstration proposed in this paper draws on different materials; however, it particularly relies on seminal books, like Administrative behavior (Simon, 1947/1997)-hereafter referred to as AB1-and his work with March (March & Simon, 1958/1983). This paper is structured as follows. Section 2 presents a comparative view on the reference works of Thomas Schelling and David Lewis and attempts to show that shifting from the psychologically-based approach of the former to the canonical model of the latter resulted in a mix of intractable problems. Sections 3 discuss conventionalism in Simon, focusing on three major concepts of his theory: roles, common mental models and organizational identification. Section 4 points out the specificity of French conventionalists, who, it is argued, provide a relevant framework for interpretation of Simon. This approach is compared to the accounts of conventions provided by the evolutionary-game theory and the contemporary behavioral economics. 2. From Schelling’s games to Lewis’s conventionalism For most economists studying conventions, the main reference is the seminal work of David Lewis (1969) on the logical problems of coordination in games. For Lewis, convention is a generalized regularity in behavior to solve problems of interaction and has these main properties: (i) common ‘‘conditional preference for conformity” to a certain behavioral pattern; (ii) arbitrariness: other regularities can be solutions to the same problem; (iii) ‘‘coordination by precedent” (p. 39): custom is an essence of con1 The present paper refers to the last, 1997 edition of AB, complemented by Simon with extremely insightful comments. However, to better defend the proposal made, only the passages reproducing the initial edition have been directly referred to. Thus, Simon’s comments of the 1997 book are not referenced here.

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vention; (iv) social approval: regularity is sustained by collective pressure and expectation of corresponding – usually informal – sanctions. Conventions are, thus, regarded in their most established meaning, i.e. as conventional rules, which guide behavior. What finally transforms the notion into a convention in Lewis’s sense (and what economists make particular use of in the game theory) is mainly due to the next two points. Firstly, Lewis stresses the tacit and informal aspects of coordination. Thus, informality of social sanctions means that convention is a self-enforcing norm, which can resist formal regulations. Secondly, Lewis’ major cognitive assumption addresses this question. How in the absence of explicit agreement on the intentions of others, does an individual manage to know, to share and to anticipate their reactions, and finally (in the game theory terminology) to maintain a certain equilibrium? Lewis’s response consists in introducing a presupposition of Common Knowledge (CK). In its habitual interpretation, CK, first formalized in game theory by Aumann (1976), means that each player knows that each player knows that each player knows, etc. that X (here, X = everyone conforms to conventional regularity).2 Lewis emphasizes that the more levels of expectations there are, each level requiring stronger rationality, the more solid are the reasons to conform. Such a condition, with infinite orders of expectations, implies nearly perfect individual rationality. To better understand that this concept of convention is strongly mixed with the issues of economic psychology, it is useful to consider Lewis from the perspective of one of his main inspirations: the work of Schelling (1960) The Strategy of Conflict.3 Lewis has been influenced by Schelling in two main respects. – The first concerns one class of the games studied by Schelling among others: games of coordination in which agents’ interests are convergent. An example of such games is this: ‘‘Name ‘heads’ or ‘tails’. If you and your partner name the same, you both win a prize” (Schelling, 1960, p. 56). Another well-known example is how to meet somebody in NYC without prior arrangement, knowing that the opponent is told the same thing. Because those games have more than one solution, or equilibrium, they raise coordination problems. Lewis incorporates that coordination-game framework into his own investigation of conventions as arbitrary solutions to recurrent coordination problems in a population of players. He proposes a concept of proper coordination equilibrium, such that ‘‘agent likes it better than any other combination [of strategies] he could have reached, given the others’ choices” (Lewis, 1969, p. 22). A coordination problem becomes a repeated game with at least two proper equilibria. – The second inspiration concerns focal points. ‘‘Some kind of prominence or conspicuousness” (Schelling, 1960, p. 57) or ‘‘uniqueness” (p. 58) of a coordination equilibrium, i.e. a property that captures the attention of players as a result of common perceptions, impressions and associations, is focal in a sense that it creates convergent expectations. In other words, a shared vision of what should be obvious to each player leads the emergence of focal points and to equilibrium selection. In the experimental games, subjects drawing on the focal points could solve coordination problems much better than a formal logic would have done. Thus, a high level of coordination resulted from Schelling’s experiments with the rendezvous game. Successful coordination in the experiments4 revealed another issue. Focal solutions might be guided by ‘‘set of rules” like ‘‘tradition” – indicating ‘‘that everyone can expect everyone else to be conscious of as conspicuous a candidate for adoption” – by ‘‘etiquette and social restraint”, or by ‘‘clothing styles and motorcar fads” (Schelling, 1960, p. 91). These rules viewed in terms of convergent expectations can be easily identified as social conventions backing the focal points.5 For instance, in the experiments conducted on the ‘‘heads and tails” game with asymmetric payoffs, most of the subjects chose ‘‘heads”. Similarly, in choosing to write A, B, C letters in any order, most players coordinated on the A, B, and C order. Schelling points out that ‘‘heads apparently beat tails through some kind of conventional priority, similar to the convention that dictates A, B, C” (p. 64, my italics). Analyzing the open bargaining situations, Schelling again suggests that focal points may be linked to ‘‘ethical standards”. All this sustains the thesis that the players might be aware of a conventional norm indicating where the focal points are settled. Lewis adopts the focal-point idea by arguing that salience (his term) could explain not only one-shot coordination, which might lead to the emergence of conventions, but also their reproduction. This enables him to link a precedent and salient equilibrium. ‘‘Indeed, precedent is merely the source of one important kind of salience: conspicuous uniqueness of an equilibrium because we reached it last time” (Lewis, 1969, p. 36). There are certain key differences between Schelling and Lewis. The former appeals to the empirical decision processed by real-world people.6 His idea of focal points and of bargaining aims at ‘‘an identification of the actual psychic and intellectual 2 Cubitt and Sugden (2003) offer an alternative reading. In their view, Lewis’s CK is not about actual beliefs or knowledge, but about reasons to believe and implies not very strong conception of rationality. 3 See the special issue on Schelling in this journal (issue 5, volume 22). I will return to some of its contributions. 4 With larger samples and more formally, Mehta, Starmer, and Sugden (1994a, 1994b) reconducted similar work in Great Britain, in which real subjects again managed to coordinate better than strategically rational individuals. 5 Heath, Ho, and Berger (2006) offer another view on the focal points. In that view, some groups distinguish themselves with cultural practices (dress codes and music tastes) by not following the majority. Accordingly, how those ‘‘divergent groups” coordinate cannot be considered in terms of Schelling’s conventions supposing coordination on a unique practice. One reference is Simmel’s (1904/1957) work on fashion. Note, however, that for Simmel, fashion results both from ‘‘the desire for individual differentiation” and from ‘‘psychological tendency towards imitation” (pp. 542–543), so that ‘‘fashion (. . .) in its very nature represents a standard that can never be accepted by all” (p. 549). This applies to the focal points in this sense: what makes groups divergent is unique and standard behavior within each group. In other words, a group-member imitates what the majority of his group does, i.e. he coordinates on the group-specific conventions, which is in line with Schelling. 6 As Sugden and Zamarrón (2006) point out, Schelling’s theory and his conception of rationality are practical and empirical ‘‘in the following sense: a principle of decision is rational for an agent just to the extent that, by using it, the agent tends to be successful in achieving her ends” (p. 619).

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phenomenon” (Schelling, 1960, p. 101) coordinating expectations. This gives The Strategy of Conflict very strong psychological dimension, which is confirmed by Schelling’s use of experimental methods and the development of this thesis: ‘‘experimental psychology can contribute to game theory” (p. 113). The major point is that what is suggested goes far beyond relying on more experiments. For Schelling, such studies should be primarily grounded in the social psychology, while ‘‘the mathematical structure of the payoff should not be permitted to dominate the analysis” (p. 162). Thus, the players’ coordination is dependent on ‘‘their social perception and interaction”, shared ‘‘impressions, images, understandings” (p. 163). Finally, Schelling repeatedly doubts ‘‘that a clear line can be drawn between the experimental psychology pertinent to game theory and the rest of social psychology” (p. 169, Footnote 4). All this reflects his major concern, which is about a complete methodological reorientation of game theory on the basis of social psychology.7 Lewis’s position is different. By analyzing the interaction of strategically rational players, he applies game theory to a specific philosophical field where the empirical arguments are less important with regard to the considerations of logical consistency and generalizations. However, this change of perspective, from the mainly psychological in Schelling to the mainly logico-philosophical in Lewis, results in intractable problems. To begin with these problems, Lewis’s proper coordination equilibrium represents a kind of Nash equilibrium. It therefore implies the fundamental problem of equilibrium selection: the standard framework assuming the CK and perfect rationality cannot justify why players should choose a certain equilibrium solution out of multiple Nash equilibria. Note that in the language of game theory the arbitrary nature of conventions is equivalent to the existence of multiple equilibria, for alternative conventions correspond to alternative equilibrium strategies. Thus, the general equilibrium selection problem, intractable for rational players, appears to be a problem of choosing and sustaining a convention. Lewis seems to overcome that intractability by appealing to salient past behavioral regularities justifying the conformity to a convention as a rational solution. This immediately raises the question: What makes individuals evaluate past regularities as salient and hence correct? There may be different precedents, and each might be viewed as analogous to the present game. Lewis acknowledges a part of the problem, when he invokes ‘‘innumerable alternative analogies” and claims: ‘‘there is room for ambiguity about what would be following precedent and doing what we did before” (Lewis, 1969, p. 37). To explain why people notice some analogies as correct and ignore the others, he refers to common experience of selecting the same precedents, which become ‘‘unambiguous in practice” (p. 38). For three reasons this argumentation does not seem satisfactory. (i) It is not clear what makes analogies ‘‘unambiguous in practice” if it is not a new convention justifying the selection of a precedent successful strategy and of ‘‘conspicuous analogy to what was done before” (Lewis, 1969, p. 38). Note that Lewis views those precedents and analogies, but also expectations and conventional regularities in general in terms of behavior. In this respect, the solution of the conventional-rule-following lies in another convention – we may call it meta-convention – on how to ‘‘extrapolate” (Lewis’s term) past behavioral regularities, or simply, how to conform to conventions. Sugden (1998), Cubitt and Sugden (2003), Bardsley and Sugden (2006) develop similar interpretations. For them, how individuals identify past regularities as analogous may be explained by ‘‘inductive standards”. In fact, Lewis (1969) invokes common inductive standards as a ‘‘basis” for CK (pp. 55–57). Cubitt and Sugden (2003) acknowledge that the exact meaning of inductive standards is not given, so that ‘‘it is not entirely clear how Lewis interprets this ‘tendency’ to follow precedent”. In their view, induction refers to ‘‘habitual associations of ideas” (p. 196) or ‘‘some habits of thought in common” (Bardsley & Sugden, 2006, p. 741). The critical point is that those thinking habits, ideas or beliefs concern ‘‘what human beings are naturally inclined to do” or expectation of ‘‘certain kinds of patterns in other people’s behavior” (Bardsley & Sugden, 2006, p. 740), i.e. behavioral regularities. This reasoning, compatible with Lewis’s approach, implies that the inductive standards function as a meta-convention: ‘‘In order to explain how conventions maintain themselves, we have to appeal to convention at another level” (p. 741). The difficulty with that new convention is that it meets the same problem: to be stabilized, it needs a meta-meta-convention on the next level, and so on. In other words, inductive standards imply the infinite hierarchical order of conventions concerning beliefs about behavior- and this is consistent with the infinite regression of behavioral expectations implied by CK. (ii) Even if we agree on what conventional regularity is about, the ‘‘right” way of conforming to it in practice may have alternative interpretations. Consider the rules of the European football – typical social conventions established through the long tradition of that game in the Great Britain. Generally, a population of fans is aware of those conventions and accepts that each team should abide by them. Their experience helps them to identify a rule to follow as analogous to precedent rules. Thus, each fan’s expectations about regularities to conform to are concordant. However, only people with little experience of supporting their team will recognize that vision of a match. Beginning from the Hastorf and Cantril (1954) study of the American football fans and drawing on the lay experience, we know that fans on each side usually ‘‘see a different game”. Each side typically views an opposing team as less fair and, hence, considers referee’s decisions from contrary positions. It is not the acceptance of the rules by the population of fans that creates a problem, but the application of these rules: since both sides differ in their perception of what happens in the 7 The Chapter 6 of The Strategy of Conflict contains argued appeals to the experimental results obtained by the leading social psychologists, like M. Deutsch, A. Bavelas, and especially to the work of M. Sherif on the emergence of the group norms.

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field, they differ on what precedents to select and on what rules to apply in any situation. There is a coordination problem within a population, which exemplifies a multitude of judgments on correct action, i.e. behavior compatible with the convention. It may be argued that fans do not select the same precedents as salient because they do not belong to the same population. From Lewis’s standpoint, it would be difficult to sustain that argument. First, he never defines a population, or, as it appears here, the group identity. Secondly, Lewis does not really explain how being a member of a population determines the way people perceive the whole situation (events, people and objects involved) so that the relevant rule would be the one chosen by such a population as being salient. (iii) Lewis’s appeal to successful practice does not seem to be consistent with the basic cognitive assumptions of his own model. Gilbert (1996) provides a detailed critique on this point by demonstrating that the full rationality of players does not dictate they could identify a certain kind of regularity as prominent. Accordingly, a strategically rational player has no reason to adopt an action on the basis of successful precedent since there is no reason to assume that the other player will consider this precedent as a basis for generating mutual expectations. If people identify salient precedents in practice, this requires psychological elements that are foreign to the main lines of Lewis’s theory, i.e. they do not follow from CK and strategic interaction under strong rationality. Gilbert’s criticism stated from the logical viewpoint parallels Schelling’s conclusions: psychological factors appear to yield a more convincing explanation of coordination than the theory of rational decision.8 All this give rise to two questions. First, how can one conceive of a convention from a Schellingian viewpoint, i.e. applying the ideas of cognitive and social psychology to economics? Secondly, can such a perspective address the coordination problems illustrated by the football game case, i.e. infinite regression, perception of the situation and group-identification? 3. Coordinated decisions in Simon’s theory Schelling does not give clear answers on these questions, but conjectures an interesting proposal in the long footnote on page 93 of his book. In the experiments where red and green lights are randomly sequenced and subjects are to make guesses which light will come next, he notices that people ‘‘apparently persist in guessing on the basis of some pattern they think they perceive, an ‘irrational’ mode of behavior given their knowledge that the sequence is generated by a random device” (Schelling, 1960, p. 93). To support this thesis, Schelling quotes the following idea: ‘‘Man is not only a learning animal; he is a pattern-finding and concept-forming animal” (Simon, 1959, p. 272). Such a conjecture-reference is extremely insightful. The present section, attempts to show that Simon’s conception of bounded rationality does provide a methodology for the use of the notion of convention in economic psychology – along with the Schellingian lines – which enables one to address coordination problems intractable within the standard game-theoretic framework. The cited quotation has all the hallmarks of the 50–60s cognitive revolution, which suggests the starting point for revisiting Simon: the simplified-model heuristic. 3.1. Simon’s central heuristic: simplified model I begin with the fundamental point of Simon’s paradigm, according to which the basic unit of economic analysis is the decision-making process. It seems to be widely acknowledged that Simon considered cognitive heuristics as a key part of that process.9 One cognitive mechanism is, by contrast, usually omitted in the reviews of Simon. In his view, most decision heuristics are the extensions or pure translations of other more general heuristics or ‘‘simplified models that capture the main feature of the problem without capturing all its complexities” (March & Simon, 1958/1993, p. 190). The meaning of such simplified models may be summarized as follows: ‘‘the first consequence of the principle of bounded rationality is that the intended rationality of an actor requires him to construct a simplified model of a real-life situation in order to deal with it. He behaves rationally with respect to this model, and such behavior is not even approximately optimal with respect to the real world” (Simon, 1957a, p. 198). The point is not merely in ignoring some details in one’s environment: ‘‘the perceived world is fantastically different from the ‘real’ world. The differences involve both omissions and distortions and arise in both perception and inference” (Simon, 1963, p. 739). Thus, the decision-maker’s simplified model of the world appears to be the key device of adaptation to bounded rationality. The simplified model also appears as a ‘‘problem space” in Simon and Newell’s (1971) theory of problemsolving. Applied to the specific context of well-defined problems, this experimentally based approach focuses on the representation of tasks as possible situations in the internal memory of individuals. Similarly, the theory distinguishes ‘‘between the task environment – the omniscient observer’s way of describing the actual problem ‘out there’ – and the problem space – the way a particular subject represents the task in order to work on it” (p. 151). 8 Sugden (1998) considers Lewis as Schelling’s follower in the sense that the former ‘‘can shunt these problems out of domain of rationality, and into that of empirical psychology or empirical sociology‘‘ (p. 387). Reconciling Lewis and Schelling, however, seems problematic. If the appeal to precedents de facto introduces a dose of psychology, it is also a source of a methodological contradiction in Lewis. Remember that Lewis is looking for the logical solution to coordination problems, and keeps the assumptions of strong rationality and CK, not compatible with the psychological mechanisms that characterize the Schellingian players. 9 Simon’s major heuristics are resumed in March and Simon (1958/1983) in this way: (i) ‘‘optimizing is replaced by satisficing”; (ii) decisions ‘‘are discovered sequentially”, (iii) individuals create and follow rules, which ‘‘serve as the alternatives of choices in recurrent situations”, (iv) each rule ‘‘deals with a restricted range of situations”; and (v) each rule may be applied in considerable independence of the others (p. 191).

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There are two functions of simplified models (or their counterparts, problem spaces). As perceptual devices, they help individuals to filter the information about the environment and self, and hence to direct his attention. The connection between the limits of rationality and the ‘‘limits of the area of attention” (one of Simon’s themes) implies the following. How attention is guided is not merely a consequence of responding to the salient features of the environment – stimuli. Such features are also a matter of attention to the extent that they are themselves determined by the simplified model. As stressed in AB, while a concrete stimulus focuses attention only on few aspects of the situation, ‘‘there are more possible stimuli for behavior than could be acted out if they were all simultaneously present to the attention” (Simon, 1947/1997, p. 103). Because the range of the objective stimuli differs from the range of the perceived stimuli, the stimulus is not a starting point in defining the situation and reacting to it. Put differently, ‘‘perception and cognition intervene between the decision-maker and his objective environment” (Simon, 1959, p. 96). The role of the simplified models is thus to drive attention to a few stimuli and, on that basis, to create a mental representation of the whole situation. As interpretative devices, the simplified models categorize the information pieces. The resulting mental image is a more or less coherent knowledge system with a hierarchical structure and goal priorities. As a centerpiece of Simon’s theory, the simplified model10 radically breaks away from the behaviorist psychology, i.e. ‘‘a theory of the brain that pictured it as a passive photographic plate or switchboard” (Newell, Shaw, & Simon, 1958, p. 163) with its focus on the stimulus–response (S–R) mechanism and the learning process. To the extent that such a model of reality (M) ‘‘intervenes between the decision-maker and his objective environment”, it replaces the behaviorist-psychological S–R perspective by the M–S–R perspective. In this respect, the concept of simplified model is one of Simon’s major contributions to the cognitive revolution in the 50–60s and to the information-processing idea of the mind – with the corresponding investigations of beliefs, mental images, categorization, attention and intention. The cited quotation from Simon in Schelling clearly appeals to that ‘‘anti-behaviorist” concept. The impact of the notion of simplified model on the analysis of economic decisions is obvious, though probably underestimated. Simon’s work has been followed in the research on judgment and decision making, both in economics and psychology. Two major approaches produced important insights into perception mechanisms shaping the individual’s internal representation of the problem: the ‘‘heuristics and biases” program (Tversky & Kahneman, 1974) – fundamental to the contemporary development of behavioral economics (this point is raised again in the last section) – and the ‘‘fast and frugal heuristics” program (Gigenzer & Goldstein, 1996; Todd & Gigerenzer, 2003). Thus, Kahneman and Tversky’s work may be viewed as an investigation of Simon’s distinction ‘‘objective stimuli vs. perceived stimuli” with its emphasis on the decision-making process. Closely related, is the empirical work revealing ‘‘limits of attention” in the Simonian sense, like studies on the framing effect (Kahneman & Tversky, 1984; Tversky & Kahneman, 1981) or decision bracketing (Read, Loewenstein, & Rabin, 1999). Because the simplified-model heuristic refers to an individual decision process, one may ask whether it supports any conventionalism. To answer this question, we should first turn to organizational roles. 3.2. Roles as decision premises Simon’s concept of role can be formulated as follows. Human decision draws on certain premises, among which there is a role, i.e. a kind of behavioral norm resulting from organization membership. People inhabiting the organization internalize the distribution of roles inside it and take their own assigned role with a corresponding set of duties and expectations. To the extent, however, that role is ‘‘a social prescription of some, but not all, of the premises that enter into an individual’s choice of behaviors” (Simon, 1963, p. 742), it does not fully condition individual actions. One major extension of this analysis appears in treating role-holding as the key feature of authority relationship. Chapter VII of AB is entirely devoted to the issue of authority predominantly viewed in terms of ‘‘socially determined roles” (Simon, 1947/1997). The important point consists in defining superior–subordinate figures and formal authority as conventional phenomena: ‘‘perhaps the most important basis for such role-taking is custom” (p. 183). Correspondingly, the customary rules (and moral judgment involved) are main factors in recognizing the authority relationship as legitimate.11 In other words, organizational roles that generate and justify employee relationship appeal to conventional norms of behavior and social approval. Following Simon, two sources of customary rules can be distinguished. The first is general social environment. People join an organization ‘‘already equipped with the mores of the society in which it operates”, and in particular with ‘‘generalized mores about superior–subordinate roles” (Simon, 1952, p. 1135). The claim that accepting power in its different forms depends on societal norms is emphasized in AB: ‘‘One of the socially determined roles in many societies is that of ‘employee’. The particular content of the role – the degree of obedience expected – will vary with the social situation” (Simon, 1947/1997, p. 183). On this account, role-holding is regulated by institutions viewed as a general set of norms in a given social environment. The second source of the customs refers to specific organizational norms, both formal and informal. The following question stresses the importance of such norms: ‘‘To what extent can and do organizations develop and 10 The simplified-model heuristic kept its centrality for Simon all through his work on bounded rationality, which may be exemplified by the following passage from his letter quoted in Conlisk (2004): ‘‘If there is any one thing that emerges with almost clarity from psychological research it is that you cannot predict decisional process in any domain without discovering how people in that domain form their problem representations (alias problem spaces or problem contexts)” (p. 194). 11 ‘‘The motive of legitimacy refers to the tendency of people to do what they feel they ‘ought’ to do (. . .) To the extent that people respond to the motive of legitimacy, the acceptance of authority can be secured by legitimizing the right to give orders and the obligation to accept them” (Simon, 1957b, p. 105).

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inculcate mores that are distinct from the mores of the society?” (Simon, 1952, p. 1135). In this respect, the perception of authority as legitimate appeals to local traditions ruling organizational duties. ‘‘Authority is accepted when rejection would incur disapproval from persons whom an individual regards as his ‘reference group’ – a group in which he wants acceptance and approval” (Simon, 1957b, p. 105). Put differently, authority is a conventional relationship: it is shaped by common (societal or specific-organization) beliefs about acceptable behavior, i.e. considerations on ‘‘what is ‘proper’ for an employer to ask an employee to do” (Simon, 1947/ 1997, p. 184, my italics). Accordingly, the power of legislation or that of the employer are imposed and both driven ‘‘(. . .) much more by the socially indoctrinated ethical notions than by the fear of sanctions. That is, the individual in a particular society believes that he ought to obey the laws adopted by the constituted authorities and that he ought to recognize property rights” (p. 188). What Simon appears to emphasize is that social/moral approval is a major support of role-taking – and therefore of authority relationships – within organizations. Simon’s analysis of roles in terms of customs enables him to investigate organization as a hierarchy of social norms – that are arbitrary (there could be other norms ruling organizational behavior), supported by informal pressure and applied according to a tradition. This parallels a part of Lewis’s analysis of convention as a self-enforcing regularity, quite resistant to official sanctions. Simon’s organizational roles might be thus viewed as rather similar to Lewis’s convention with two major differences: roles do not imply the latter’s assumptions on rationality and CK, and are supplemented with background ethical considerations, on which Lewis does not really focus. Two remarks allow us to better appreciate the implications of Simon’s account of roles. One is that such an account is clearly supported by Schelling. Recall the latter’s idea of different conventions (traditions, etiquette, clothing styles, etc.), which help anticipations of strategies to converge and yield solutions to coordination. Those conventions also includes roles: ‘‘The concept of role in sociology, which explicitly involves the expectations that others have about one’s behavior, as well as one’s expectations about how others will behave toward him, can be in part be interpreted in terms of the stability of ‘convergent expectations’, of the same type that are involved in the coordination game. One is trapped in a particular role, or by another role, because it is the only role that in the circumstances can be identified by a process of tacit consent” (Schelling, 1960, p. 92). The second remark concerns Simon’s thesis that roles do not fully determine people’s conduct. This thesis, a part of the explicitly formulated criticism of ‘‘behaviorism” in social psychology,12 is in line with the Simonian idea of simplified models with its emphasis on mental states and implies thinking about role-holding itself. In so far as social interaction is concerned, such thinking appeals to decision premises other than roles, as, for instance ‘‘premises about the state of the environment based directly on perception, premises representing beliefs and knowledge” (Simon, 1963, p. 742). It follows that Simon goes far beyond the simple application of the role theory to decisions and organizations – though, given the young age of that theory in the social psychology at the time when AB appeared, such an application itself is by no means a trivial exercise. For our concern, Simon’s contribution is twofold. (i) By connecting roles and customs, Simon views organizational behavior from a conventionalist perspective – which is quite consistent with the Schellingian game-theoretic perspective. (ii) By applying the anti-behaviorist-psychological framework to the concept of roles and appealing to other decision premises (‘‘based directly on perception”), Simon readdresses the problem of behavioral choice as a problem of both mental states and morality. 3.3. Common models That last problem, which directly stems from bounded rationality, leads to the emergence of a new concept: ‘‘The limit of human understanding in the presence of complex social structures leads human beings to construct simplified maps (i.e. theories or models) of the social system in which they operate, and to behave as though these maps were the reality. To the extent that such maps are held in common they must be counted among the internal constraints on rational adaptation” (Simon, 1952, p. 1135). Other names (‘‘common model”, ‘‘systems of concepts”, ‘‘classifications”, ‘‘categories”, etc.) are also utilized by Simon to call such common maps, with a recurrent emphasis on their incomplete and selective character in retranslating reality. In the present article, the term common model has been chosen (hereafter CM) to call this kind of incomplete knowledge. The concept of CM largely parallels Simon’s description of the individual simplified model, or problem space. CM seems to have the same heuristic function, i.e. guide people’s attention through selecting and structuring information. For March and Simon (1958/1983), such a model addresses the question ‘‘What kind of event is this?” (p. 184) and defines, thereby, the perceptions of the organization members. CM differs, however, from previously examined simplified models/problem spaces in that it is not seen in a purely individual context, but as a perceptual mechanism that arises during social interaction and supplies interacting people with ‘‘the social definition of a situation” (Simon, 1952, p. 1135, my italics). For Simon, that social dimension usually refers to formal organizations. To simplify, the human environment is constructed by groups/organizations. When March and Simon (1958/1983) emphasize that cognition in organizations relies on the ‘‘simplified, screened and biased model of the objective situation and [that] filtering affects all of the ‘givens’ that enter into a decision process” (p. 175), the model they speak about appeals to shared perception and is analogous to CM. The 12 Simon (1963) quoted, in particular, T. Newcomb, for whom a role was as a directly prescribed set of behaviors. One Simon’s argument can be easily traced to the cognitive revolution: ‘‘A ‘behavior’ or ‘action’ is not a satisfactory unit for describing the cognitive orientations of persons to their environment” (p. 742).

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main issue of their thesis is twofold. (i) This shared perceptual model contains criteria allowing decision-makers to identify relevant matters. (ii) Organizational communication re-enforces the selection mechanisms in this sense: a great part of that information has already been selected, summarized and then transmitted to an individual by the other organization members who share identical perceptual references. CM is thus a perceptual model reflecting organization-specific beliefs about this reality. Holding such beliefs leads to define the situation, and more generally, to understand what is rational and this in the same way for all organization members. But the main point is stressed in the following passage. ‘‘The process of organizing involves, among other things, securing acceptance by the organization members of a common model that defines the situation for them, and provides them with roles and expectations of the roles of others, and with commonly accepted classificatory schemes” (Simon, 1952, p. 1135). There are two coordination mechanisms. The first is related to organizational roles viewed (see the previous sub-section) as directly regulating behavior. However, role-taking needs justification and requires the second, more general mechanism of coordination. That mechanism, common model, produces a shared, selective picture of the organization, its environment and organizational members. What CM regulates is not necessarily the behavior within the organization, but the understanding of reality by organization members. In this sense, joining an organization means internalizing a specific collective model of rationality. March and Simon (1958/1983) further develop this point when they address the issue of organizational blueprints containing a detailed plan of action: ‘‘The blueprint employs a carefully defined, highly developed ‘language’ or set of symbolic and verbal conventions (. . .) (These conventions) are examples of a still more general phenomenon: technical languages, whose symbols have definite and common meanings to the members of an organization. Prominent in these technical languages are categories for classifying situations and events” (p. 184, my italics). The use of those conventional meanings is not neutral for the collective perception of the environment: ‘‘(. . .) anything that does not fit the system of concepts is communicated only with difficulty. Hence, the world tends to be perceived by the organization members in terms of the particular concepts that are reflected in the organization’s vocabulary. The particular categories and schemes of classification it employs are reified, and become attributes of the world rather than mere conventions (. . .)” (p. 186, my italics) for members of the organization. Note that the conventions March and Simon speak of here are not reduced to technical vocabulary or to behavior coded as linguistic signs. As a form of collective knowledge and belief, those ‘‘linguistic” conventions have a property that consists in selecting and structuring (‘‘classifying”) events. What is referred to in the cited passage as ‘‘common meanings” and ‘‘schemes of classification”, etc., and explicitly applied to a certain conventional phenomenon is completely in line with Simon’s previous description of a common model. These shared cognitive schemes operate as interpretation frames, which affect the perception of the organizational members. This implies that CM is not a simple extension of the simplified-model heuristic in the context of formal organizations, but it directly coordinates the simplified models/problem spaces of each organization member and creates convergent world views (‘‘social definition of situation”). Before considering how CM, as a means of coordination of individual representations, is relevant to the study of coordination problems, another concept developed by Simon will be re-examined. 3.4. Organizational identification Assigning common models in organizations have the following implication: an individual develops an ‘‘organizational personality” (Simon, 1947/1997, p. 278) and becomes an ‘‘organized individual”. In other words, the organization determines ‘‘the scheme of social values in place of his personal motives” and the decision alternatives that result in ‘‘depersonalizing choice” (p. 295) for that individual. The mechanism leading to this ‘‘organizational personality” has a specific name: identification. ‘‘A person identifies himself with a group when, in making the decision, he evaluates the several choice alternatives in terms of their consequences for the specified group” (p. 284). As usual, Simon considers groups in the broad sense also including formal organizations or society. Identification with the group leads to adopt particular behavioral patterns that are considered as correct with regard to the goals and values of that group – ‘‘good for America” is among Simon’s examples of that correctness. Therefore, those values and corresponding behavior may be in conflict with the values and behavior providing their own identification to other social groups. Thus, an action capable of ‘‘boosting business in Berkeley” (another of Simon’s example of value for a group) may not necessarily be ‘‘good for America”. In spite of such contradictions, people simultaneously identify themselves with different groups, so that specific identification is neither rigid nor permanent: ‘‘it should be not supposed that it is ever complete and consistent (. . .) There is no inevitability in any particular identification” (p. 293). There is a direct connection between organizational identity and bounded rationality: ‘‘it is clear that attention may narrow the range of vision by selecting particular values (. . .) and particular behavior alternatives for consideration (. . .) Identification, then, has a firm basis in the limitations of human psychology in coping with the problem of rational choice” (p. 288). What Simon seems to stress is that organizational identification shapes perceptions and, in this view, appears as a solution to the restrained individual cognitive abilities. Though this concept is another example of anticipating today’s conceptual developments in psychological and managerial sciences (i.e. theories of organizational and social identity), its main implication for my concern is this. The relationship between specific values and behavioral alternatives adopted by the ‘‘organized individual” as a result of his identification is of a similar kind as the relationship between specific CM and actions resulting from role-holding. In this respect, the concept of identification emphasizes an important feature of common models – belonging to a group. It also brings an additional

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dimension associated with the changing identity: to the extent that an individual may have plural identities, he may share several CMs at a time, which are sometimes in contradiction. 4. Two-level coordination and its implications 4.1. French conventionalists: decoupling the notion The French School of Economics of Conventions (FSEC) (Dupuy, 1989; Eymard-Duvernay, 1997; Favereau, 1986, 1999, 2001, 2008) studies coordination problems (in a broad sense: how economic coordination and cooperation are possible) from the perspective of bounded rationality, directly related to Simon’s decision theory. Applying this perspective leads to distinguish between two types of conventions. The first type concerns coordinating behavior. In other words, convention is viewed in a nearly Lewisian sense, but without the assumption of Common Knowledge, which is incompatible with the bounded rationality condition. Called Convention2 by Favereau, this concept refers to a tradition or a set of rites and social prohibitions: ‘‘custom is an archetype of Convention2” (Favereau, 1986, p. 261). While Lewis focused on inter-individual interaction, FSEC views conventions primarily in terms of collective constructions: for instance, as customary workplace rules in organizational settings, like a firm or public administration. In this context, coordination by conventional rules consists in duties defining the particular types of behavior of organization members. Those duties do not necessarily correspond to official responsibilities, but emerge as a reaction (positive or negative) to formal regulations and authority. More generally, ‘‘Convention2 corresponds (. . .) to the obliged roles” (Favereau, 1986) and can therefore be regarded from the viewpoint of acceptance by socially structured groups. Very roughly:

Conv ention2 ¼ ðset of Þ conv entional ruleðsÞ ¼ Lewisian conv ention — CK: Like any rule, Convention2 needs an infinite order of other conventional rules to be stabilized. Because Convention2 pre-supposes bounded rationality, this problem mainly appears in the psychological sense: the individual’s limits in terms of information storing and processing prevent him from foreseeing and agreeing on all the necessary cases of conventional-rule utilization. To state things differently, Convention2 meets – but may not be able to solve on its own – a coordination problem. It is the second type of convention that French conventionalists see as a solution to the coordination problem. They suggest that the individual tends to build and maintain a mental model that shapes his understanding of the world, of self and of other individuals. As a shared construction, such a model is the conventional representation, which directly coordinates people’s interpretations of the environment and of their own position in it. This second type of convention, named Convention1 by Favereau (1986), may not directly prescribe any particular behavior. As a belief system, however, it involves moral and/or psychological references of what is relevant in behavioral rules. Convention1 is assigned, therefore, to function as a collective system of evaluation helping people to choose the right rule to follow and, furthermore, to find the interpretation of the right way for rule-following. The identification of two coordination levels, the level of behavior governed by rules (Convention2) and the level of representations governed by shared-perception models (Convention1), constitutes the central idea of the FSEC. Decoupling the concept of convention suggests a reconstruction of Simon’s decision theory along the following lines. First, there is a clear connection with Simon’s account of organizational roles in terms of conventions-customs. Such roles sustained by the social/ethical pressure have all the properties of Convention2. To sum up: the Simonian role = Convention2. In this respect, organization appears to be a network of anticipated mutual obligations and expectations shaped into a hierarchy of conventional rules. In that hierarchy, we can roughly define at least three levels of coordination with respect to behavior: custom at the ‘‘summit”, roles somewhere at the ‘‘intermediate” level and the simplest operational rules at the ‘‘bottom”. Second, the notion of Convention1 is consistent with the conception of common model. The individual cognitive limits are the starting point for Simon’s and the French conventionalists’ paradigms. According to both, shared mental constructions (correspondingly, CM and Convention1) aim to resolve a decision problem in the context of bounded rationality by simplifying the world. Because those constructions substitute for objective reality, they serve as models of rationality. From the standpoint of full rationality, CM and Convention1 appear at best as constraints to maximization (at worst, as not conceivable). From the standpoint of bounded rationality, they are solutions to the limited human abilities by relating the individual decision process to social cognition (with corresponding contextual parameters) and ethics. All this seems to confirm that CM is a counterpart of Convention1 in the context of the organization. Reconstructing Simon on these conventionalist grounds has the following implications. First of all, CM significantly complements the M–S–R decision mechanism. Because CM enables people to answer the question: ‘‘What kind of event is this?”, it identifies the situational stimulus in the same way for all organization members and provides the ‘‘social definition of the situation” (to use Simon’s expression). It is only after this type of definition is reached in common that an organization member applies a behavioral rule. As March and Simon, 1958/1993, state it, ‘‘there is a close relationship between the categories used in the cognitive code and the operational decision rules” (p. 185). Those social cognitive codes (CM) clearly imply that the M–S–R decision scheme becomes a two-phase mechanism: (i) social definition of the situation – (ii) social definition of the roles/rules. There is a strong conceptual link between that two-phased decision mechanism and two-level (decoupled) notion of convention. Accordingly, CM/Convention1 guides individual mental representations of reality and allows each group/organization member to evaluate rule-following (in organizations, role-taking), i.e. conforming to Convention2, as relevant/reasonable or

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not. The major implication of such an evaluation is that it yields a solution to the coordination problem under the assumption of bounded rationality. Recall that, for strategically rational players, the question of how to select and apply a conventional regularity is intractable, and logically results in an infinite hierarchy of conventional rules of behavior. CM/Convention1, as a social–psychological construction, breaks away not only from the rational choice theory, but also from the infinite regression: what is coordinated by CM/Convention1 is not necessarily regularity in behavior, but the perception of the whole situation (moral issues implied). A conventional regularity in behavior (Convention2) is, thus, no more grounded in the chain of other conventional regularities, but in a common interpretation of the salient situational stimuli, which helps to generate convergent behavioral expectations. In other words, referring to social cognition solves coordination problem. From the methodological viewpoint, this implies that understanding coordination problems is not possible without taking into account (i) the full limits of rationality, accepting a psychologically reliable viewpoint on people’s interaction; and (ii) shared representations of the world including social/moral judgment on that interaction.13 4.2. Conventions in other approaches claiming limited rationality One may ask to what extent this two-level, or two-phase, approach to conventions differs from other approaches that claim to adopt more realistic cognitive assumptions with regard to mainstream theories. Such approaches are especially provided by evolutionary-game theory and by contemporary behavioral economics. In the evolutionary-game approaches to conventions, the strategy’s efficiency is a reproductive success, analogous or equivalent to maximizing expected utility. Evolutionary dynamics choose the most efficient strategy, while players typically explain their opponents’ behavior only by past information. When strategies form an evolutionary equilibrium, they represent a convention. Two studies exemplify those approaches. For Young (1998), individual strategy maximizes expected utility viewed in terms of frequency-based probabilities. When the game is recurrent, a player forms beliefs about the strategies of other individuals by tracking the frequency distribution of strategies those individuals applied in recent history. The game converges to an equilibrium in which the same strategy is selected by each player, so that the best choice would be to continue that strategy. A convention emerging from these best choices is a stochastically stable equilibrium, resistant to small random noises. As Young (1998) concludes, that model ‘‘demonstrates how high-rationality solution concepts in game theory can emerge in a world populated by low-rationality agents” (p. 144). For Binmore (1994), conventions appear in different forms, and first of all as memes (codes of conduct and rules of thumb) replicated from one individual to another. Because evolution results in a strategy that is consistent with maximizing the rate of its own transmission, people behave as if subjective probabilities have been assigned to events and as if they maximized the expected utility. The claim that ‘‘evolution will not be kind to memes that inhibit their own replication” (p. 27) is close to Young’s conclusion. The cognitive groundings of those models have two properties. (i) Subjects are goal-oriented intellectually passive players having no intentional options to change the process of natural selection. Because only such nearly mindless players can be involved in the deterministic process that allegedly chooses the most efficient – conventional – strategy for them, this assumption about mindlessness serves as methodological necessity for achieving ex post global rationality. To the extent that such an assumption transforms decision-makers into pre-programmed automata, it seems psychologically questionable. (ii) At the same time, the evolutionary models do not fully exclude rationality groundings from the standard game theory. Players have utility functions and maximize individual payoffs. In Young, they are endowed with rather extraordinary cognitive abilities to build statistical models and automatically calculate relative frequencies. Although these groundings of conventions seem contradictory, they converge on one issue: the absence of clear empirical justification and the related weakness of psychological validity. Serious doubts can be raised about the explanatory power of evolutionary models with regard to the role of conventions in the real-life reasoning of individuals.14 Most of the proponents of contemporary behavioral economic theory (BET) seem to share this basic idea: ‘‘the more realistic our assumptions about economic actors, the better our economics” (Rabin, 2002, p. 658). Whether the BET yields an account of conventions that draws on such assumptions is, however, not self-obvious, to a large extent because it is not a homogeneous body of research and because conventions do not always explicitly appear to be its direct concern. A large part of the empirical results in behavioral research may be relevant for our purpose. Many of those results and explanatory theories are summarized and developed in an attempt to provide a general conceptual framework under the name of Behavioral Game Theory (Camerer, 2003). One may distinguish two kinds of contributions. One deals with coordination games, especially those applied to organizational issues. Thus, Weber and Camerer (2003) study corporate culture as a set of conventions, a ‘‘general shared social understanding”, part of which is organizational language. They use coordination games to see how, through a set of repeated trials, players react to similar images and create culture viewed as ‘‘a specialized homemade language a pair develops to solve a task” (p. 404). Considering players as analogous to merging firms enables them to represent the failure in coordination in terms of conflict between ‘‘cultural conventions” in post-merger integration. More generally, those conventions are viewed as endogenous, i.e. a product of interaction. 13 This point (ii) appeals to the theory of social representations (Moscovici, 1983), in so far as there is a strong connection between the latter and the Convention1 concept, both from the methodological and experimental viewpoints. Works drawing on the social representations theory to examine the issues of economic psychology have been published in this Journal (see, for instance, Meier & Kirchler, 1998). Using the insights from that theory from the conventionalist perspective is consistent with Schelling’s idea on using social psychology to study coordinated decisions. 14 For the criticism of the general evolutionary-game framework, see Dore (1997) and Sudgen (1998, 2001).

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Furthermore, because corporate language appears as part of the shared understanding, there is a connection with March and Simon’s emphasis on language conventions in organizations (‘‘categorization systems”) analogous to CM. A second kind of contributions is especially developed around the experimental results showing the systematic deviations from self-interest behavior in different games like Ultimatum, Dictator, Public Goods or Trust games. The explanation of those results appeals to a kind of sociality, conventions being sometimes cited as a form of such sociality (Camerer, 2003). The conceptual treatment of the experimental results is, however, problematic. This treatment is typically made through introducing other-regarding preferences that might reflect different social norms. Thus, the norm of fairness is viewed in terms of inequality aversion, i.e. predisposition to reduce the inequality of payoffs (Charness & Rabin, 2002; Fehr & Schmidt, 1999), and the norm of reciprocity in terms of perceived kindness, i.e. predisposition to cooperate depending on beliefs about the opponent’s behavior and beliefs, or intentions (Falk & Fischbacher, 2006; Rabin, 1993). As an account of conventions, this approach has three major limitations. (i) If there is any conventional dimension in those models, it is reflected in other-regarding preferences. At best, conventions are exogenous intended motives supposed to explain why people are not always selfish. It is not quite clear what cognitive mechanisms justify why conformity to a convention exists among people. (ii) Though the agent’s utility is not purely self-interest based, it remains individual and basically consistent with the rational choice approach. (iii) Agents continue maximizing a preference relation – as a mental process. Adjusting utility functions to express sociality (conformity to a convention) and to present the observed ‘‘misbehavior” as optimal in this sense does not seem a psychologically-based explanation.15 This point (iii) is rooted in the general methodology. From their origin, there was a clear tendency in Kahneman and Tversky’s economic psychology and in contemporary BET to provide the interpretation of bounded rationality mainly in terms of systematic biases, anomalies, inferential shortcomings and illusions in judgment and behavior. Not only does such an interpretation lead to study the psychological elements of decision making as deviations from rational thinking and behavior in neoclassical models, but, in a sense, it seems compatible with viewing those models as theoretical norms. As stated by Kahneman (2003), ‘‘theories in behavioral economics have generally retained the basic architecture of the rational model, adding assumptions about cognitive limitations designed to account for specific anomalies” (p. 1469). As a result, there is not much exaggeration in the claim that most of the BET is ‘‘built on the premise that not only are mainstream economics methods great, but so too are most mainstream economic assumptions” (Rabin, 2002, p. 659). In so far as maximizing some utility function, one of these assumptions, remains a centerpiece of most behavioral approaches, they also retain the principle of rational choice. It is remarkable, however, that there seems to be a turn in the foundations of BET, which consists in not considering mental processes in terms of deviations from a normative theory. Accordingly, people’s ‘‘behavior (. . .) is not guided by what they are able to compute, but by what they happen to see at a given moment” (Kahneman, 2003, p. 1469). This may be considered as a more complete assimilation of Simon’s simplified-model concept and its implications for decision making. Among behavioral economists, there is a better understanding that people ‘‘first attempt to figure out what kind of situation they are in and then adopt choice rules that seem appropriate for that situation” and that ‘‘there do seem to be important differences in how people perceive the world” (Loewenstein, 2001, p. 503).16 Although such an understanding mainly focuses on individual cognition and not on shared mental representations, it could be viewed as an important evolution towards Simon’s idea of the two-phase decision mechanism: social definition of the situation – social definition of rules, and towards the conception that is close to CM/Convention1. 4.3. CM is an operational concept How use the two-level notion of conventions – and the related idea of two-phase decision mechanism – is exemplified by Simon himself in the empirical studies conducted in collaborations, in particular in Dearborn and Simon (1958) and Sarasvathy, Simon, and Lave (1998). Both articles have the same concern – differences in representations of the same situation – and draw on similar empirical materials – managers’ judgments. (i) In Dearborn and Simon (1958), the case of a steel company was presented to 23 managers working for the same manufacturing firm. Managers were asked to define the most important problems of the described company while taking on the role of top executive. The results showed that their judgments actually differed from company-wide views. Subjects tended to select those elements of the context that corresponded to the activity of their specific department. Thus, sales was mentioned as the most important problem by 83% of sales managers and by 29% of other managers; organization problems by 80% of production managers and by 22% of other managers.Dearborn and Simon stress the general importance of these results. They explain selective perception as follows: ‘‘Presented with a complex stimulus, 15 The limitations (i) and (ii) are overcome in the literature on team reasoning (e.g. Bardsley & Sugden 2006; Colman, Pulford, & Rose 2008), although it cannot be directly identified with the BET. There is little explicit mentioning of conventional phenomena, but they appear in a double sense: as collective action resulting from intentional group preferences and as team-reasoning itself that results from the group identity (à la Simon). The problem remains with point (iii): while team-reasoning theories consider rationality with regard to the group agency, the main form of that rationality remains rather standard – maximized utility. 16 One example is the Güth (1995) interpretation of the results of experimental ultimatum games. In this view, decision making is dynamic reasoning, in which the initial stage consists in defining a decision task. Accordingly, a proposer activates different behavioral choices following the perception of a game as a ‘‘fair division task” or as a ‘‘charity task”.

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the subject perceives what he is ‘ready’ to perceive in it; the more complex and ambiguous the stimulus, the more the perception is determined by what is already ‘in’ the subject and less by what is in the stimulus” (p. 140). This is the key point. Selectivity is the result of prior mental representations, because ‘‘the criteria of selection have become internalized” (p. 143) by subjects before the case presentation. Note that such criteria are group-specific so that mental representations are group-shared constructions, which can be easily identified in terms of CM. (ii) In Sarasvathy et al. (1998), the same general question ‘‘are internal representations/problem spaces important in decision making?” (p. 216) is put in terms of how entrepreneurs and bankers perceive and foresee to manage different business risks (financial risks, involving danger for human life and health, and natural disaster risk). The results demonstrate that entrepreneurs and bankers form two sharply distinct groups. Thus, entrepreneurs target an acceptable (sufficiently low) level of risk and they try to reconfigure the initial situation by seeking creative solutions for larger profits. The bankers target a high level of return they consider as acceptable and then try to find solutions to reduce the risk corresponding to that level, thereby also changing the initial situation. While entrepreneurs view the problems in terms of their own responsibility and personal values, i.e. seeking solutions to eliminate the health and life risks for their employees, bankers consider their possibilities as limited and tend to avoid personal considerations. The study could have ended with the conclusion that ‘‘presented with identical decision problems, entrepreneurs and bankers use very different representations of those problems (p. 216), but it goes somewhat further in its attempt to understand why both groups see the situation differently. Simon and his colleagues conjecture that this may be related to their professional experience, but probably even more to the difference in prior cognitive representations ‘‘that might have led entrepreneurs and bankers to choose different careers in the first place” (p. 217). In other terms, they suggest two possible explanations, one in terms of CM, another in terms of individual simplified model. One may note that in both cases, each managerial activity implies strongly standardized techniques, methods, operational routines, which are in a certain sense, conventional rules of behavior. This seems trivial, but the point is that these activities, i.e. the ways of solving problems, differ according to the ways of seeing the given situation. Simon and his colleagues stress this relationship between perceiving the problem and resulting behavior. Thus, with regard to the life and health risks, ‘‘bankers are unable to generate as many alternatives as entrepreneurs because their internal representation limits the space they search” (Sarasvathy et al., p. 216). To the extent that the perceptions of the same situation imply specific behavioral alternatives, and that those alternatives imply a set of conventional measures, each perceptual model will result in a specific set of conventional rules – which will differ from other sets of conventional rules to solve the same problem. In this respect, both studies provide extremely clear illustrations of how a shared-perception system may lead to shared behavioral patterns (methods and rules) that are not always consistent or even might come into conflict with other collective perceptional mechanisms. There may be a symbolic sense in that, contrary to Dearborn and Simon’s work, the article of Sarasvathy et al. (1998) was published in an economic journal. The 40 years that separate both studies defending identical proposals (directly related to a two-phase mechanism), enable us to measure the evolution of economic sciences towards recognizing the role of mental processes in decision making. After all, this is a positive evolution.

5. Conclusion This paper presented a reconstruction of Herbert Simon’s theory of bounded rationality within the conventionalist framework. First, it investigated the canonical foundations of the economic literature on conventions, which are associated with the game-theoretic contributions of T. Schelling and D. Lewis. It is argued that because the latter’s approach shifted from the psychologically-focused project of the former, it confronted major problems of coordination – that are also intractable for the standard game theory strongly inspired by Lewis. This is followed by the examination of several sides of Simon’s conventionalism, focusing on its direct connection with bounded rationality. Three main forms of conventions are clearly distinguished – roles, common cognitive models of reality and group identity – each operating within the organizational context. There is a strong link between those conventions and the emphasis on mental representations and categorizations, especially with the concept – largely overlooked by most economists – of individual simplified models of the world, which can be viewed as Simon’s major contribution to the anti-behaviorist revolution and a key element of his approach to rationality. Thirdly, the paper has applied the decoupled notion of conventions developed by the FSEC to Simon. In this view, Simon’s conventional phenomena are of two types: one is specified as a form of customary rules and organizational roles (guiding behavior), the second type as a form of social representations of the world (guiding individual perceptions), the latter enabling agents to interpret the former in terms of ethical relevancy and rationality in a given situation. In other words, this approach, concentrated on the problems of shared perceptions and moral judgment, offers a solution to coordination problems intractable within the standard theory. Moreover, decoupling the notion of convention enables us to better recognize the Simonian idea of the double-phase decision mechanism: ‘‘social definition of the situation – social definition of behavioral rules”.

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Simon and Schelling had a common project: to justify that coordination and cooperation problems cannot be examined independently from psychology. Furthermore, the psychological dimension they appeal to relies on empirically-based foundations, incompatible with the basic assumptions of neoclassical economics and the standard game theory. Simon’s theory of bounded rationality provides a coherent and clear vision of coordination by conventions from the perspective of the individual and the group mental processes. This vision leads to a better understanding of some of the limitations – in terms of psychological reliability – of the approaches to conventions developed by the evolutionary-game theory and to a lesser extent by contemporary behavioral economics. Simon’s methodological position means thus that analyzing coordination problems is not possible without studying individual cognitive limits and social representations. 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