Ch 11.2 Flashcards
What is perfect rationality?
A theoretical idea where a person makes decisions with complete information, perfect logic, and only considers economic gain.
Who is “Economic Person”?
An ideal decision-maker who:
Has unlimited access to information.
Thinks perfectly logically.
Only cares about economic gain.
Why is perfect rationality unrealistic?
Real people have limits on information, time, and decision-making ability.
What is bounded rationality?
A realistic way of making decisions with limited information, time, and biases.
Who introduced bounded rationality?
Herbert Simon.
What limits rational decision-making?
Lack of complete information.
Time constraints.
Social and political pressures.
What is framing in decision-making?
The way a problem or choice is presented, which affects how people decide.
What are cognitive biases?
Mental shortcuts that help make decisions faster but can lead to mistakes.
Do intelligent people avoid biases?
No, both smart and less smart people are equally prone to biases.
How do emotions affect decisions?
Moods and feelings can influence how people perceive problems and make choices.
