Decision making under uncertainty: An adaptive model

W. H. Furtan

European Review of Agricultural Economics, 1977, vol. 4, issue 4, 417-430

Abstract: Although adaptive economic models have been developed in a theoretical context, few have been made operational. This paper develops a model of how decision makers use the feedback of information to allocate resources under conditions of uncertainty. Entropy is used as a measure of uncertainty. The decision maker adapts his resource allocation as he learns about his set of possible alternatives. The rate at which he adapts or learns, depends upon the randomness of the outcome for any set decisions. As he learns the distribution of outcomes from a set of decisions, he reduces his uncertainty. The paper also provides an example problem of such an adaptive model and gives an economic interpretation of the results.

Date: 1977
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