The Anatomy of Error in Decision-Making of Rationally Behaving Agents from the Perspective of the Theory of Bounded Rationality: Extension for Contextual Games

MENDELU Working Papers in Business and Economics No. 21/2012

18 Pages Posted: 10 Feb 2012 Last revised: 30 Jun 2012

See all articles by Tomáš Otáhal

Tomáš Otáhal

Mendel University - Faculty of Economics and Business Administration

Radim Valenčík

Independent

Date Written: February 10, 2012

Abstract

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.

Keywords: Bounded rationality, complex systems, contextual games, erroneous behavior, rational decision-making

JEL Classification: D01, C73

Suggested Citation

Otáhal, Tomáš and Valenčík, Radim, The Anatomy of Error in Decision-Making of Rationally Behaving Agents from the Perspective of the Theory of Bounded Rationality: Extension for Contextual Games (February 10, 2012). MENDELU Working Papers in Business and Economics No. 21/2012 , Available at SSRN: https://ssrn.com/abstract=2002739 or http://dx.doi.org/10.2139/ssrn.2002739

Tomáš Otáhal (Contact Author)

Mendel University - Faculty of Economics and Business Administration ( email )

Staňkova 578/16b
Brno, 602 00
Czech Republic

Radim Valenčík

Independent ( email )

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