Rational Decision-Making, Flashcards
What does rational mean?
that economic agents are able to consider the outcome of their choices and recognise the net benefits of each one. Rational agents will select the choice which presents the highest benefits
How are all of the economic agents assumed to act rationally?
Consumers are assumed to act rationally. They do this by maximising their utility
Producers are assumed to act rationally. They do this by selling goods/services in a way that maximises their profits
Workers are assumed to act rationally. They do this by balancing welfare at work with consideration of both pay and benefits
Governments are assumed to act rationally. They do this by placing the interests of the people they serve first in order to maximise their welfare
Why is the assumption of rational decision making flawed
In many ways, the assumption of rational decision making is flawed. For example, consumers are often more influenced by emotional purchasing decisions than a rational computation of net benefits
