Satisficing

Satisficing is a decision-making strategy or cognitive heuristic that entails searching through the available alternatives until an acceptability threshold is met, without necessarily maximizing any specific objective. The term satisficing, a portmanteau of satisfy and suffice, was introduced by Herbert A. Simon in 1956, although the concept was first posited in his 1947 book Administrative Behavior. Simon used satisficing to explain the behavior of decision makers under circumstances in which an optimal solution cannot be determined. He maintained that many natural problems are characterized by computational intractability or a lack of information, both of which preclude the use of mathematical optimization procedures. He observed in his Nobel Prize in Economics speech that "decision makers can satisfice either by finding optimum solutions for a simplified world, or by finding satisfactory solutions for a more realistic world. Neither approach, in general, dominates the other, and both have continued to co-exist in the world of management science".

Simon formulated the concept within a novel approach to rationality, which posits that rational choice theory is an unrealistic description of human decision processes and calls for psychological realism. He referred to this approach as bounded rationality. Moral satisficing is a branch of bounded rationality that views moral behavior as based on pragmatic social heuristics rather than on moral rules or optimization principles. These heuristics are neither good nor bad per se, but only in relation to the environments in which they are used. Some consequentialist theories in moral philosophy use the concept of satisficing in a similar sense, though most call for optimization instead.

Two traditions of satisficing exist in decision-making research: Simon's program of studying how individuals or institutions rely on heuristic solutions in the real world, and the program of finding optimal solutions to problems simplified by convenient mathematical assumptions (so that optimization is possible).

Heuristic satisficing refers to the use of aspiration levels when choosing from different paths of action. By this account, decision-makers select the first option that meets a given need or select the option that seems to address most needs rather than the "optimal" solution. The basic model of aspiration-level adaptation is as follows:

Step 1: Set an aspiration level α.

Step 2: Choose the first option that meets or exceeds α.

Step 3: If no option has satisfied α after time β, then change α by an amount γ and continue until a satisfying option is found.

Example: Consider pricing commodities. An analysis of 628 used car dealers showed that 97% relied on a form of satisficing. Most set the initial price α in the middle of the price range of comparable cars and lowered the price if the car was not sold after 24 days (β) by about 3% (γ). A minority (19%), mostly smaller dealerships, set a low initial price and kept it unchanged (no Step 3). The car dealers adapted the parameters to their business environment. For instance, they decreased the waiting time β by about 3% for each additional competitor in the area.