The modern theory of decision making under risk emerged from a logical analysis of games of chance rather than from a psychological analysis of risk and value. The theory was conceived as a normative model of an idealized decision maker, not as a description of the behavior of real people. In Schumpeter's words, it “has a much better claim to being called a logic of choice than a psychology of value” (1954, p. 1058).

The use of a normative analysis to predict and explain actual behavior is defended by several arguments. First, people are generally thought to be effective in pursuing their goals, particularly when they have incentives and opportunities to learn from experience. It seems reasonable, then, to describe choice as a maximization process. Secondly, competition favors rational individuals and organizations. Optimal decisions increase the chances of survival in a competitive environment, and a minority of rational individuals can sometimes impose rationality on the whole market. Thirdly, the intuitive appeal of the axioms of rational choice makes it plausible that the theory derived from these axioms should provide an acceptable account of choice behavior.

The thesis of the present article is that, in spite of these a priori arguments, the logic of choice does not provide an adequate foundation for a descriptive theory of decision making. We argue that the deviations of actual behavior from the normative model are too widespread to be ignored, too systematic to be dismissed as random error, and too fundamental to be accommodated by relaxing the normative system.