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

17 Pages Posted: 3 Nov 2012 Last revised: 29 Jan 2014

See all articles by Tomáš Otáhal

Tomáš Otáhal

Mendel University - Faculty of Economics and Business Administration

Radim Valenčík

Independent

Date Written: November 2, 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 by individuals and organisms is not necessarily erroneous if we look at the contextual games that individuals and organisms play in a 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 decision-making by 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 Errors in Decision-Making by Rationally Behaving Agents from the Perspective of the Theory of Bounded Rationality: Extension for Contextual Games (November 2, 2012). Available at SSRN: https://ssrn.com/abstract=2170366 or http://dx.doi.org/10.2139/ssrn.2170366

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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