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Educating rational decision-makers about uncertainty using US social security investment economics

Author

Listed:
  • S Kumar

    (University of St Thomas)

  • T Ressler

    (University of St Thomas)

  • M Ahrens

    (University of St Thomas)

Abstract

We make a case for improving the education of future rational decision-makers who will incorporate probabilistic thinking and not simply deterministic thinking in their processes of making decisions. The power of a system, systems thinking, and the power of thinking spatially, symbolically, and distributionally will be more naturally internalized by students who routinely use the tools of rational decision-making in both their coursework and their professional careers. Using the recent Social Security debate in the United States as a case example, we demonstrate how to enlarge the frame of the discussion, and hence change the course of the debate, to include uncertainty, market volatility, and the security of investments, not just their average rate of return. An important issue is identified and addressed by the use of a simple mathematical model based on difference equations and generating functions, which was implemented in Microsoft Excel along with the @RISK Monte Carlo Simulation program. The lessons learned can be used in many decision-making frameworks.

Suggested Citation

  • S Kumar & T Ressler & M Ahrens, 2007. "Educating rational decision-makers about uncertainty using US social security investment economics," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 58(10), pages 1294-1305, October.
    • Handle: RePEc:pal:jorsoc:v:58:y:2007:i:10:d:10.1057_palgrave.jors.2602278
    DOI: 10.1057/palgrave.jors.2602278
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    References listed on IDEAS

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    1. Bikhchandani, Sushil & Hirshleifer, David & Welch, Ivo, 1992. "A Theory of Fads, Fashion, Custom, and Cultural Change in Informational Cascades," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 992-1026, October.
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