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An Approach to Robust Decision Making: The Rationality of Heuristic Behavior

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Author Info
Markus Pasche () (University of Jena, Faculty of Economics)

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Abstract

Empirical studies show that decisions deviate from the predictions of expected utility theory and violate the axiomatic foundations. Hence, many generalizations to non-expected utility theory have been developped. But empirically they did not provide an improvement over the standard approach. In this paper random errors are integrated in an expected utility framework. Such errors occur when agents have limited information processing capacities. A performance criterion is provided to measure the expected success of behavioral strategies. A special class of robust decision rules and its properties are analyzed. It is argued that in case of bounded rationality the evolution will select heuristics from an open class of decision rules due to performance differences.

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Paper provided by Friedrich-Schiller-Universität Jena, Wirtschaftswissenschaftliche Fakultïät in its series Working Paper Series B with number 1998-10.

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Date of creation: 01 Jun 1998
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Handle: RePEc:jen:jenavo:1998-10

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Related research
Keywords: (non-) expected utility; imprecise beliefs; behavioral strategies; performance; robustness; bounded rationality.;

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Find related papers by JEL classification:
D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

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