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How to Cope With (New) Uncertainties—A Bounded Rationality Approach

Author

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  • Werner Güth

    (Luiss Guido Carli
    Max Planck Institute on Collective Goods)

  • Hartmut Kliemt

    (Justus Liebig University)

Abstract

Whenever certain axioms are fulfilled decision-making under uncertainty can be modeled as if maximizing the expected utility of results of risky choices over a known state space with non-ambiguous probability weights. As opposed to this, practically coping with ever new uncertainties—new in that statistical, empirical evidence is lacking—requires a purely procedural bounded rationality approach as paradigmatically proposed here. The procedures can be evaluated and improved in view of evidence of their “objective” success or failure whereas the prescription to behave as if maximizing a subjective utility function is of no direct technological use for a boundedly rational actor.

Suggested Citation

  • Werner Güth & Hartmut Kliemt, 2017. "How to Cope With (New) Uncertainties—A Bounded Rationality Approach," Homo Oeconomicus: Journal of Behavioral and Institutional Economics, Springer, vol. 34(4), pages 343-359, December.
    • Handle: RePEc:spr:homoec:v:34:y:2017:i:4:d:10.1007_s41412-017-0057-0
    DOI: 10.1007/s41412-017-0057-0
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    References listed on IDEAS

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    1. Armen A. Alchian, 1950. "Uncertainty, Evolution, and Economic Theory," Journal of Political Economy, University of Chicago Press, vol. 58(3), pages 211-211.
    2. Werner Güth & Matteo Ploner, 2017. "Mentally perceiving how means achieve ends," Rationality and Society, , vol. 29(2), pages 203-225, May.
    3. Gilboa,Itzhak, 2009. "Theory of Decision under Uncertainty," Cambridge Books, Cambridge University Press, number 9780521517324, January.
    4. Herzberg, Frederik, 2009. "Elementary non-Archimedean utility theory," Mathematical Social Sciences, Elsevier, vol. 58(1), pages 8-14, July.
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    Cited by:

    1. Max Albert, 2017. "How Bayesian Rationality Fails and Critical Rationality Works," Homo Oeconomicus: Journal of Behavioral and Institutional Economics, Springer, vol. 34(4), pages 313-341, December.

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