Qualitative Reasoning in Decision under Uncertainty

Economic models are primarily based on quantitative decision rules, such as choosing between investments according to their expected utility and calculating the optimal response to competitors’ pricing. Qualitative decision rules, in contrast, are based on values or categories, such as ‘high’, ‘relatively small’, ‘largest’ or ‘similar’, rather than numerical values. Qualitative terms, such as ‘high and low likelihood’, are widely used in the media, intelligence analysis, business jargon, and everyday communication, suggesting the need to explore their usage in economic environments and its consequences. This paper experimentally identifies commonly used decision rules under uncertainty, when information on the likelihoods of events is categorical: either ‘high’, ‘medium’ or ‘low’ (i.e., verbal likelihoods).