Economists often work from an assumption that people are rational actors who seek to make optimal decisions. But as King and Kay write, "real households, real businesses, and real governments do not optimize; they cope."
We are all forced to continually make decisions based on incomplete and imperfect information. As a result, we rely on biases and heuristics to help us act decisively in conditions of uncertainty. These biases are not necessarily irrational, but are necessary for our functioning.
- Situations of radical uncertainty cannot be resolved through probabilistic thinking alone
- Volatile environments motivate us to avoid uncertainty