Payoff assessments without probabilities: A simple dynamic model of choice

We develop a model which reflects the tendency of people to simplify the decision problems they face. The decision maker chooses among alternate strategies only on the basis of the payoff she assesses she would obtain from them, and these assessments do not explicitly take into account her subjective judgements regarding the likelihood of alternate states of the world. At each stage, the decision maker chooses the strategy that she assesses to give the highest payoff. She updates her assessments adaptively. We show that such behavior leads to maxmin choices. We also consider the decision maker who experiences shocks. Journal of Economic Literature Classification Numbers: C7, D8.