The Anatomy of Error in Decision-Making of Rationally Behaving Agents from the Perspective of the Theory of Bounded Rationality: Extension for Contextual Games
FBE MENDELU in Brno
affiliation not provided to SSRN
February 10, 2012
MENDELU Working Papers in Business and Economics No. 21/2012
How can errors in decision-making by rationally behaving individuals be explained? The concepts of bounded rationality proposed by H. Simon and of imperfect information in the complex reality by F. Hayek attack the over-restrictive assumption of perfectly informed individuals or organisms in neoclassical microeconomics. Since this assumption excludes erroneous decision-making, some results must be explained by questioning the rationality assumption. In this paper, we show that erroneous decision-making of individuals and organisms is not necessarily erroneous if we look at the contextual games which individuals and organisms play in the complex reality. This helps to explain errors in the decision-making of individuals or organisms, while maintaining the assumption of rational behavior. At the same time, we show that the errors observed in the contextual analysis of games in the decision-making of individuals or organisms can only be apparent.
Number of Pages in PDF File: 18
Keywords: Bounded rationality, complex systems, contextual games, erroneous behavior, rational decision-making
JEL Classification: D01, C73working papers series
Date posted: February 10, 2012 ; Last revised: June 30, 2012
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