The Limited Rationality Under Limited Information

The decision theory is becoming a important branch of psychology,especially after Tversky and Kahneman won the Nobel economic prize.People connect with outside world by the information which obtained through feelings,cognitions and thoughts.Those information affect their decision and trice,and ultimately affect their life.Normally the information we have is insufficient information,then they need to justify those by their knowledge and experience.The objectve of this paper is to test whether people can behave rationally when the information is insufficient.This paper uses typical method of experimental psychology to test whether people's decision making could be predicted by savage's theorem when facing incomplete information and uncertainty.Subjects,who all come from Capital University of Economics and Business,are required to choose one urn out of two to pick up a ball,where urn A has known number of blue ball and red ball,and urn B is only known that the total number of balls are equal to urn A,but the combination of blue and red remains unclear.The subject would win Y5 if he/she choose the blue ball.This is typical "Knightian uncertainty" for urn B.The result shows that subjects cannot act as which predicted by Bayesian subjective expected utility theory.It also shows that subjects tend to confuse posterior probability with trial production.This result may implicate that people are tend to believe that the probability of trial comes from their own reasons such as luck.They may never think of the real probability of events.This paper demonstrates that people has limited rationality,cognition is a scarce resource in decision process.People's behavior will not tend to rationality even if the information they have is large enough.People tend to simplify the decision process to be along the line with bounded rationality.The way of simplification would be general in society,which may lead to a collective bias.