Read: Rational Decisions

Ken Binmore’s Rational Decisions is not quite what I expected when I first read just the title. It is, however, something you should very much expect from Ken Binmore. He is an excellent Game Theorist. And even though he eyes current experimental economics rather critically, i.e. he is just more skeptical about some of the claims your standard experimental economists (or are these rather behavioral economists?) are willing to make, his research is very much based on empirical findings, experiments and the boundedness of human capabilities and facilities.

Rational Decisions is about Bayesian Decision Theory. It is about where it can apply and where not. Bayesian Decision Theory It is useful in Games, in situation in which everything is known up to an exactly quantified level of risk. It is utterly “ridiculous” if the decision maker instead is confronted with uncertainty as is the case in the real world where most events do not have a unique objective probability.

Rational Decisions is, therefore, about filling the gap between Decision Making under risk and Decision Making under uncertainty. In my opinion, it is ultimately about an instance of Bounded Rationality.

Binmore gives a comprehensive overview of the standard economic model of decision making and its limitations. He explores the foundations of this model, reviews the historical context and clarifies how Economic Theory has to be interpreted, that current Economic Theory (i.e. the concept of revealed preferences and utility) is not concerned with psychological motives at all.

His writing is witty and opinionated, yet, succinct and clear. Though, sometimes the math made me think twice… All in all, Rational Decisions is a very enlightening experience.