Simon’s satisficing

When Simon first proposed bounded rationality (Simon, 1955, 1956), he suggested that decision makers attempt to find solutions that satisfy and suffice – decision makers satisfice. This model of choice behaviour is particularly concerned with the serial nature of search that

accompanies decision-making. A decision-maker accumulates information about the

alternatives available in the choice set, rather than having all the information available all at once. One example is shopping for an appliance: different alternatives will be available at different shops, and collecting information on the possible alternatives requires time and effort (Earl, 1983, 1986; Earl & Potts, 2004). Another example is the impermanent nature of some alternatives, such as an offer on a house that will expire unless accepted (Simon, 1955). Because alternatives or choice options are not available all at once, especially not without search, individuals need a decision process that does not require full information or full availability. Simon suggested that individuals have threshold levels of satisfaction and are willing to accept alternatives that meet those levels (Augier, 2001; Simon, 1955, 1956). Every attribute has a threshold level, although they may not all be constraining for a particular decision. Each option is examined in turn to see if it is sufficient and satisfactory. If it does not meet all the threshold levels of all the attributes, it is rejected and the next one examined in turn. The threshold levels are not necessary invariant; new information can be incorporated (Simon, 1955).

Critically, the outcome of this process depends on the order in which options are assessed (Gigerenzer & Selten, 2001b). The option chosen is not necessarily the one that would score highest on all the attributes if all options were available simultaneously. This aspect places the notion of time centre stage in decision-making and therefore economics (Earl, 1986). It also raises issues of shop layout, shopping district geography, telephone directory organisation, etc.6

Satisficing as a model of consumer behaviour poses several challenges for CE research. First, it suggests that the continuity axiom does not describe actual consumer behaviour. Satisficing

is non-compensatory choice behaviour because options that do not meet attribute threshold levels are removed from consideration, regardless of their levels of other, less important attributes. Increasing the levels of these less important attributes, which are not the reason that the option was omitted, does not increase the ‘value’ of the option or the probability that it will be chosen. Thus, consumers are not exchanging more of one attribute for less of another, and no point of indifference can be located. As a result, it is impossible to measure aggregate consumer preference in terms of average discounts, average WTP, or changes in consumer welfare. Without being able to determine sets of attributes that render consumers indifferent, such aggregate measures are not possible.

Another challenge that satisficing poses to CE research is that the notion of maximisation has been set aside. For example, Simon (1956) developed a model of an organism with several goals. He showed that search time can be divided amongst several goals without the need for marginal calculations. RUM-based modelling of CE data relies on the assumption that the chosen alternative provides maximum utility for the respondent. The chosen alternative thus has more ‘value’ than the other alternatives, which allows calculation of the model parameters and, later, of the implied prices or partworths of the different attributes. If consumer choice proceeds by a process of satisficing, using CE survey results to make calculations of marginal utility and implied prices for attributes would be without foundation.

A final way in which satisficing challenges CE surveying is perhaps the most troubling. Satisficing places the process of searching for information, such as decisions on which

attributes to examine and when to stop searching for more options or more information, at the centre of consumer theory (Earl, 1986; Gigerenzer & Selten, 2001b). A CE survey, by

contrast, pre-determines for respondents which information is salient and then presents the entire choice set at once. It obviates the need for searching. If satisficing truly describes consumer behaviour, then CE surveying is unrealistic. It could not be assumed that the results

of a CE survey would mimic the results from actual behaviour in a market, because the two processes of arriving at decisions are different, and the results could also therefore be different.

Satisficing is the original model for boundedly rational decision making. It focuses on the interaction of cognitive limitations and environmental structure, and provides a description of the choice process. It addresses some of the issues that have been raised with regard to the neoclassical model of choice in the context of GMF: it does not assume continuity of

preferences, it does not attempt to aggregate individual choices in aggregate price or welfare measures, and it does not rely on maximisation. However, it also suggests that the whole approach of CE research, which is to identify a few attributes and present all the information about choice alternatives and attributes simultaneously, is potentially an unrealistic

simplification of consumer choice environments. Satisficing as a model of decision making may caution researchers about making claims as to the ability of survey data to mimic actual markets. Unfortunately, research into reactions to GMF must rely on survey data, simply because real market data is virtually unavailable. Satisficing is thus a poor model for CE survey data.