Individual [Economic] Decision Making

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  • Created by: DanTstudy
  • Created on: 22-09-19 18:08
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  • Individual Decision Making
    • George Akerlof asked the question
      • "if he wants to sell the car, do I really want to buy it?"
    • Imperfect Information
      • when attempting to maximise total utility, consumers often possess imperfect information and make 'wrong decisions'
      • Asymmetric  information exists when one party to a market transaction possess less information relevant to the exchange than the other
    • Bounded Rationality
      • when making decisions, an individual's rationality is limited by information they have, the limitations of their minds and the infinite amount of time available in which to make decisions.
      • in complex choice situations, bounded rationality can result in satisfying and not maximising choices
    • Bounded self-control
      • the additional benefit from consumption of a good or service will decline with each extra unit consumed marginal utility will diminish
        • [but is this an accurate description of the compulsive gambler / over-eater]
      • bounded self-control: traditional and orthodox economic theory assumes that when making choices, individuals have complete control
        • BUT, behavioural economists believe individuals may have a lack of self-control

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