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How to cope with (new) uncertainties: A bounded rationality approach

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  • Güth, Werner
  • Kliemt, Hartmut

Abstract

A rigorous reconstruction of scenario-based real choice making reveals the incompleteness of decision-modeling and the practical prevalence of uncertainty. Theoretically complete models conceal it. As a remedy a scenario-based procedure of coping with uncertainty can prescribe how the boundedly rational decision-maker should proceed from her or his internal point of view. Though models of substantive rationality cannot serve as guidance for decision-making under uncertainty, we can improve prescriptions for coping with uncertainties in view of evidence of substantive success or failure. Decision theory should aim for a reflective equilibrium incorporating internalist-prescriptive and externalist-descriptive aspects to turn good into better practice.

Suggested Citation

  • Güth, Werner & Kliemt, Hartmut, 2015. "How to cope with (new) uncertainties: A bounded rationality approach," Economics Discussion Papers 2015-46, Kiel Institute for the World Economy (IfW Kiel).
    • Handle: RePEc:zbw:ifwedp:201546
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    Citations

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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.

    More about this item

    Keywords

    uncertainty; procedural rationality; satisficing; risk-communication;
    All these keywords.

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory

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