1.2.10 Alternative view on consumer behaviour

Question 1

How do rational economic agents act

Answer 1

-consumers max utility
-firms max profit
-make choices independently
-have fixed preferences
-gather perfect info on choices
-make optimal choices

Question 2

What does behavioural economics suggest about rational economic agents

Answer 2

-consumers dont always max utility
-firms dont always max profit
-copying behaviour
-habitual behaviour
-inertia
-short term thinking
-need to feel valued
-computational difficulties

Question 3

What does Daniel Kahneman believe

Answer 3

-Two ways of thinking system 1/ intuition and system 2/ logic
-Using 1 when we should use 2 leads to biases in decision making
-Individuals make poor decisions and require regulations and institutions for better decision making