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Title: Heuristics and Public Policy: Decision Making Under Bounded Rationality
Authors: Dhami, Sanjit
al-Nowaihi, Ali
Sunstein, Cass R.
First Published: 19-Jun-2018
Publisher: Harvard Law School
Citation: Harvard John M. Olin Center for Law, Economics, and Business Heuristics and Public Policy, 2018, Discussion Paper No. 963
Abstract: 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.
Series/Report no.: Harvard John M. Olin Center for Law, Economics, and Business Heuristics and Public Policy Discussion Paper;963
DOI Link: 10.2139/ssrn.3198739
ISSN: 1936-5349
eISSN: 1936-5357
Version: Publisher Version
Status: Peer-reviewed
Type: Report
Rights: Copyright © The Author(s), 2018.
Appears in Collections:Reports, School of Management

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