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Rationality Assumption: "Homo
Economicus" (Ch 1)
- 3 rationality assumptions:
- 1. people are interested only in their own satisfaction
- 2. choices always align with long-term interests
- 3. people can consider every choice
- 3. people can consider every choice
- 2. choices always align with long-term interests
- 1. people are interested only in their own satisfaction
- you don't make yourself worse off on purpose
- there's SO many ways to be irrational; only ONE way to be rational
- studying rationality gives baseline- can easily notice deviation from baseline
- economics is focused on outcomes rather than thought process
- economics is focused on outcomes rather than thought process
- studying rationality gives baseline- can easily notice deviation from baseline
- there's SO many ways to be irrational; only ONE way to be rational
- bounded rationality: people
are nearly rational;
sometimes break from the 3
rationality assumptions;
people use rules of thumb
instead of considering all
choices
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