CORMSIS Seminar Event

In decisions under risk, the alternative options, their possible outcomes and the probabilities with which these outcomes are obtained are known. In decisions under uncertainty, some of these options, outcomes or probabilities are not known. I point out that standard decision theoretic models tend to apply just to decisions under risk. But, except for some situations such as playing in casinos, most decisions are in practice decisions under uncertainty, and there is consensus that people then use simple rules of thumb.

I go one step further and use evidence from a host of laboratory experiments to argue that people use simple rules of thumb to make decisions under risk as well. Finally, based on examples from diverse fields such as sports, health, peacekeeping and economics, and based on more general analyses, I present conditions under which simple rules of thumb lead to good decisions and under which they do not.