Abstract

This chapter investigates the complexity of the organizational environment in the context of boundedly rational decision making. In particular, it begins by looking at the issue of rationality in organizations both through the lens of the historic development of the notion of bounded rationality and through the theoretical analysis of the relation between bounded rationality and problem solving. In order to do so, Herbert Simon’s chunking theory, which is understood as a precursor to the more recent dual process reasoning theories, is considered in analyzing its import for bounded rationality in organizational decision making, when it comes to the key notions of routine and search. Crucial experimental and neurophysiological evidence connected to routinized and search behavior is reviewed, and the chapter concludes by linking Schumpeter's theory of innovation with bounded rationality in organizations.