Economics is often defined as something along the lines of “the study of how
society manages its scarce resources.” The starting point of most such studies
is that individuals allocate their resources such that they themselves will get
the highest possible level of utility. An individual has an idea of what the consequences
of different actions will be, and she chooses that action she believes
will produce the best result for her.
We report the results of experiments on economic decisions with two populations,
one of healthy elderly individuals (average age 82) and one of younger students (average
age 20). We examine confidence, decisions under uncertainty, differences between
willingness to pay and willingness to accept and the theory of mind (strategic thinking).
Our findings indicate that the older adults’ decision behavior is similar to that of young
adults, contrary to the notion that economic decision making is impaired with age.
objective or subjective, when making decisions under uncertainty. This is especially true
when the consequences of the decisions can have a significant impact, financial or
otherwise. Most of us make everyday personal decisions this way, using an intuitive process
based on our experience and subjective judgments.
Mainstream statistical analysis, however, seeks objectivity by generally restricting the
information used in an analysis to that obtained from a current set of clearly relevant data.
When managers make choices or decisions under risk or uncertainty, they must somehow incorporate this risk into their decision-making process. This chapter presented some basic rules for managers to help them make decisions under conditions of risk and uncertainty. Conditions of risk occur when a manager must make a decision for which the outcome is not known with certainty.