Rational Decision Making (1.2.1)

Question 1

What is Rational decision-making?

Answer 1

Process of making choices that are logically sound, well-informed, and aim to maximize an individual’s or organization’s objective(s), often by carefully weighing the available options and considering their potential outcomes.

Question 2

What is rational decision-making for Consumers Governments and Firms?

Answer 2

Consuming goods and services that maximize your utility.
Firms acting rationally will aim to maximize their profits. Governments aim to maxamise social welfare.

Question 3

Define Utility

Answer 3

The level of satisfaction gained from consuming a good or service.

Question 4

What is one thing that could prevent you from making a rational decision when making a purchase?

Answer 4

One main limitation is lacking the information required to make the decision

Question 5

What is irrational decision making?

Answer 5

Occurs when choices are made without fully considering the best available information, often leading to suboptimal outcomes.

Question 6

What are the three forms of irrational decision making? What do they each mean?

Answer 6

-Copying other people (Herding)
-Buying the same thing you did last time (Habitual)
-Picking an option and hoping for the best (Computation Weakness)

Question 7

What does the irrational decision making Herding mean?

Answer 7

Copying other people (Trends)

Question 8

What does the irrational decision making Habitual mean?

Answer 8

Buying the same thing you did the last time

Question 9

What does the irrational decision making Computation Weakness mean?

Answer 9

Picking an option and hoping for the best

Question 10

What is diminishing marginal utility?

Answer 10

The satisfaction from finishing a meal wont be as satisfactory after 2 or 3 times. Your enjoyment will decrease the more of the same meal you eat

Question 11

What does diminishing marginal utility look like on a graph?

Answer 11

Slide 11