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Heuristics and Public Policy: Decision Making Under Bounded Rationality

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journal contribution
posted on 25.04.2019, 13:51 by Sanjit Dhami, Ali al-Nowaihi, Cass R. Sunstein
How do human beings make decisions when, as the evidence indicates, the assumptions of the Bayesian rationality approach in economics do not hold? Do human beings optimize, or can they? Several decades of research have shown that people possess a toolkit of heuristics to make decisions under certainty, risk, subjective uncertainty, and true uncertainty (or Knightian uncertainty). We outline recent advances in knowledge about the use of heuristics and departures from Bayesian rationality, with particular emphasis on growing formalization of those departures, which add necessary precision. We also explore the relationship between bounded rationality and libertarian paternalism, or nudges, and show that some recent objections, founded on psychological work on the usefulness of certain heuristics, are based on serious misunderstandings.

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Citation

Studies in Microeconomics, 2019, 7(1), pp. 7-58

Author affiliation

/Organisation/COLLEGE OF SOCIAL SCIENCES, ARTS AND HUMANITIES/School of Business

Version

AM (Accepted Manuscript)

Published in

Studies in Microeconomics

Publisher

SAGE Publications (UK and US)

issn

2321-0222

Acceptance date

01/02/2019

Copyright date

2019

Available date

14/09/2019

Publisher version

https://journals.sagepub.com/doi/full/10.1177/2321022219832148

Language

en

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