Ulric B. and Evelyn L. Bray Social Sciences Seminar

Contingent reasoning is ubiquitous and difficult. We provide a new hypothesis -the Power of Certainty- to decompose difficulties with contingent reasoning. When moving from an environment with one state of known value to one where the value of the state is uncertain with a probability distribution over possible values, two changes occur. First, the number of values to consider increases. Second, having more than one value introduces uncertainty. We propose that this lack of certainty, the loss of the Power of Certainty, impedes payoff maximization and show that it accounts for a substantial portion of difficulties with contingent reasoning.