Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/111911
Authors: 
Smith, Robert Elliott
Year of Publication: 
2015
Series/Report no.: 
Economics Discussion Papers 2015-50
Abstract: 
Making decisions under uncertainty is at the core of human decision-making, particularly economic decision-making. In economics, a distinction is often made between quantifiable uncertainty (risk) and un-quantifiable uncertainty (Knight, Uncertainty and Profit, 1921). However, this distinction is often ignored by, in effect, the quantification of unquantifiable uncertainty, through the assumption of subjective probabilities in the mind of the human decision makers (Savage, The Foundations of Statistics, 1954). This idea is also reflected in developments in artificial intelligence (AI). However, there are serious reasons to doubt this assumption, which are relevant to both AI and economics. Some of the reasons for doubt relate directly to problems that AI has faced historically, that remain unsolved, but little regarded. AI can proceed on a prescriptive agenda, making engineered systems that aid humans in decision-making, despite the fact that these problems may mean that the models involved have serious departures from real human decision-making, particularly under uncertainty. However, in descriptive uses of AI and similar ideas (like the modelling of decision- making agents in economics), it is important to have a clear understanding of what has been learned from AI about these issues. This paper will look at AI history in this light, to illustrate what can be expected from models of human decision-making under uncertainty that proceed from these assumptions. Alternative models of uncertainty are discussed, along with their implications for examining in vivo human decision-making uncertainty in economics.
Subjects: 
uncertainty
probability
Bayesian
artificial intelligence
JEL: 
B59
Creative Commons License: 
http://creativecommons.org/licenses/by/3.0/
Document Type: 
Working Paper

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