Choice and Uncertainty

Suren Basov

Chapter 5 in Microeconomics with Spreadsheets, 2017, pp 61-69 from World Scientific Publishing Co. Pte. Ltd.

Abstract: Economic actors are often forced to make choices without full knowledge of the consequences. Consider, for example, the decision whether to take an umbrella with you today. The decision would be easy if you knew whether it will rain. But what should your choice be if you are not sure? Your choice would still be easy if you knew the objective probability that it will rain today. But what if even the probability is not known? The most popular theory in economics, known as subjective expected utility theory, argues that there is no difference between the two situations. Therefore, we will consider in this chapter choice under uncertainty assuming the odds are known. Bibliographic notes in the end of this part will direct you to the references that challenge this assumption.

Keywords: Microeconomics; Game Theory; Producer Theory; Consumer Theory; Economics of Information; Basics of Industrial Organization; Excel; The Solver (search for similar items in EconPapers)
JEL-codes: C81 (search for similar items in EconPapers)
Date: 2017
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