Herbert Simon grew up in Milwaukee and went to the University of Chicago in 1933, planning, he later wrote, to become “a mathematical social scientist.” His Nobel autobiography credits “an undergraduate field study for a term paper” with getting him interested in how organizations make decisions.
The field study he described in his Nobel lecture took place in Milwaukee in 1934 and 1935. He was looking at how the city ran its public recreation facilities. Two agencies shared the job: the school board and the city public works department.
On paper, nothing should have been hard. The heads of the two agencies appeared to agree on the objectives of the recreation program. Neither appeared to be “competing for empire.” Yet there was, Simon wrote, “continual disagreement and tension between them” over one question: how to divide the money between physical maintenance and play supervision.
Simon had read his economics. The textbook method was plain: compare what the next dollar would buy in each activity, and shift money toward the better one until the two balance. “Why did they not, as my economics books suggested, simply balance off the marginal return of the one activity against that of the other?”
Further exploration, he wrote, made it apparent that “they didn’t equate expenditures at the margin because, intellectually, they couldn’t.” There was no way to measure what a dollar of either activity produced. The two managers did have pictures of what a playground was, and the pictures were incompatible. For the public works administrator, it was “a green oasis in the crowded gray city.” For the recreation administrator, it was “a social facility, where children could play together with adult help and guidance.”
Each side was measuring the budget against a different playground.
Simon’s career, by his own account, was “settled at least as much by drift as by choice.” After he graduated in 1936, the term paper led to a research assistantship in municipal administration, then to running a research group at Berkeley. Puzzles like Milwaukee’s became the central theme of his 1947 book, Administrative Behavior. In 1978 he received the Nobel Prize in economics “for his pioneering research into the decision-making process within economic organizations.”
In his Nobel lecture he went back to the two officials and their playgrounds. The pattern he had first noticed in Milwaukee, he said, “proved to be the visible tip of a very large iceberg.”