Individual [Economic] Decision Making
- 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
- the additional benefit from consumption of a good or service will decline with each extra unit consumed marginal utility will diminish
- George Akerlof asked the question
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