Approaches to decision making under uncertainty

Abstract

This article presents a teaching plan to discuss decision making in uncertain environments. Two possible approaches to decision making under uncertainty are discussed. The optimising approach is elegant but demanding in cognitive effort and does not always reflect actual behaviour. The satisficing approach, which is based on Herbert Simon's bounded rationality paradigm, offers a compelling alternative. However, this approach may not be generic and may need to be operationalised on a case specific basis. The approaches are detailed in the context of an investment decision to enable active learning. We also present an exploratory analysis of the impact of size of the choice set on the two approaches.