Individual Economic Decision Making Part 2 Flashcards
Define symmetric information?
This means that the consumer and producer have perfect market information to make their decisions
Define imperfect information?
This is when information is missing to the consumer of producer or both so informed decisions can’t be made
What are some effect of imperfect information?
Misallocation on resources
A consumer may pay too much or too little
Firms may produce the wrong amount
What is asymmetric information?
When there is unequal knowledge between the consumer and seller
What problem may asymmetric information effect?
The principle-agent problem
How could asymmetric information be tackled?
Advertising
Government intervention
What do we assume about individuals in traditional economics?
That individuals are rational decision makers who try to maximise their utility
What is the Administrative man theory?
A theory by Herbert Simon who recognised the limitations of the decision making model of how consumers make decisions
What is the administrative man theory also known as.
Bounded rationality model
What are the assumptions of the administrative man model?
The first alternative that is satisfactory is selected
The decision maker recognises that they perceive the world as simple
The decision makers recognises that they need to be comfortable making decisions without considering all alternatives
Decisions could be made by heuristics
Consumers are able to exercise self control
Consumers are unable to exercise self control with all decisions
What is very important to consider in terms of consumer decision making?
Consumers don’t always act rationally
What does acting rationally mean?
Acting in a way that will have the optimal level of utility or benefit for the consumer
