ABSTRACT
The contrast between optimizing and satisficing is a staple of economic methodology, but Chapter 9 challenges the distinction under certain conditions. The conditions are imposed by Knightian uncertainty. The chapter begins by featuring the unbounded rationality of Econs and the bounded rationality of Humans. To relate these forms of rationality, the chapter recaps the comparative decision theory of Chapter 4. It then presents two simple heuristics and shows that applications of comparative decision theory turn out to be applications of one of these heuristics. The chapter illustrates the coincidence of Econ and Human reasoning with an example drawn from life: a momentous decision by the Federal Reserve Board in the United States. It concludes with some general observations on the relations between normative and descriptive decision theory.
