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Coping with unpleasant surprises in a complex world: Is rational choice possible in a world with positive information costs?

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  • Congleton, Roger D.

Abstract

This paper provides a rational choice-based analysis of the causes and consequences of surprise events. The paper argues that ignorance may be rational, but nonetheless produce systematic mistakes, inconsistent behavior, and both pleasant and unpleasant surprises. If ignorance and unpleasant surprises are commonplace and relevant for individual and group decisionmaking, we should observe standing institutions for dealing with them - and we do. Insofar as surprises are consistent with rational choice models, but left outside most models, it can be argued that these methodological choices mistakenly limit the scope of rational choicebased research.

Suggested Citation

  • Congleton, Roger D., 2011. "Coping with unpleasant surprises in a complex world: Is rational choice possible in a world with positive information costs?," CIW Discussion Papers 6/2011, University of Münster, Center for Interdisciplinary Economics (CIW).
    • Handle: RePEc:zbw:ciwdps:62011
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    References listed on IDEAS

    as
    1. Frydman, Roman, 1982. "Towards an Understanding of Market Processes: Individual Expectations, Learning, and Convergence to Rational Expectations Equilibrium," American Economic Review, American Economic Association, vol. 72(4), pages 652-668, September.
    2. Fremling, Gertrud M & Lott, John R, Jr, 1996. "The Bias towards Zero in Aggregate Perceptions: An Explanation Based on Rationally Calculating Individuals," Economic Inquiry, Western Economic Association International, vol. 34(2), pages 276-295, April.
    3. Congleton, Roger D, 2001. "Rational Ignorance, Rational Voter Expectations, and Public Policy: A Discrete Informational Foundation for Fiscal Illusion," Public Choice, Springer, vol. 107(1-2), pages 35-64, April.
    4. Roger Congleton, 2007. "Informational limits to democratic public policy: The jury theorem, yardstick competition, and ignorance," Public Choice, Springer, vol. 132(3), pages 333-352, September.
    5. John Conlisk, 1996. "Why Bounded Rationality?," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 669-700, June.
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    More about this item

    Keywords

    Ignorance; Rational Ignorance; Natural Ignorance; Bounded Rationality; Rational Choice; Biased Expectations; Crisis Management; Social Insurance; Bailouts; Economics of Information;
    All these keywords.

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • D6 - Microeconomics - - Welfare Economics

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