Rational Decisions.
Decisions whose total benefit is greater than or equal to their total cost
.
Which of these best explains when rational decisions occur in economics?
Explain that rational decisions occur when
the marginal benefits of an action equal or exceed the marginal costs
. Rational actors in the economy will only select a choice if the marginal benefits of it are equal to or greater than the marginal costs of the action.
What is a rational economic decision example?
The idea that individuals will always make rational, cautious and logical decisions is known as the rational choice theory. An example of a rational choice would be
an investor choosing one stock over another because they believe it offers a higher return
. Savings may also play into rational choices.
What should be considered when making a rational decision quizlet?
- Define the decision situation.
- Identify the alternatives.
- Evaluate the alternatives.
- Select the best alternative.
- Implement the chosen alternative.
- Evaluate the results.
What should always be considered when making rational decisions?
The rational choice will satisfy
conditions of logical consistency and deductive completeness
. Decision making will be objective, unbiased and based on facts. Information is gathered for analysis during the decision making process. Future consequences are considered for each decision alternative.
What is the rational economic decision?
Rational behavior is the cornerstone of rational choice theory, a theory of economics that assumes that
individuals always make decisions that provide them with the highest amount of personal utility
. These decisions provide people with the greatest benefit or satisfaction given the choices available.
What is rational decision making process?
Rational decision making is
a multi-step process for making choices between alternatives
. The process of rational decision making favors logic, objectivity, and analysis over subjectivity and insight. The word “rational” in this context does not mean sane or clear-headed as it does in the colloquial sense.
What is rationality example?
To economists—as long as you’re doing what you want given your situation, you’re acting rationally. … This makes rationality a pretty confusing concept, so watch out for that. That means that the craziest behavior you can think of could be rational for economists.
Burning money
is a good example.
How do microeconomics make decisions?
Microeconomics breaks down into the following tenets:
Individuals make decisions based on the concept of utility
. … This concept is called rational behavior or rational decision-making. Businesses make decisions based on the competition they face in the market.
How do people make economic decisions?
Economists use the term marginal change to describe a small incremental adjustment to an existing plan of action. …
Rational people
often make decisions by comparing marginal benefits and marginal costs. Thinking at the margin works for business decisions.
What is a negative consequence for rational decision makers?
Disadvantages. The rational decision making process
requires careful consideration and deliberation of data
; this takes time, making this method unsuitable for quick-decisions.
Why would you want to restrict economic output?
As interest rates rise, people generally keep their wealth in assets that pay returns, restricting the money supply. Why would you want to restrict economic output?
Enforcing the Antitrust laws could help lower cost-push inflation
.
Which of the following represents the first step in the rational decision making process?
Identifying a few possible courses of action
is the first step involved in the rational decision making process. The bounded rationality framework contends that individuals make decisions under conditions of certainty.
Which of the following is an assumption of the rational model of decision making?
The model of rational decision making assumes that
the decision maker has full or perfect information about alternatives
; it also assumes they have the time, cognitive ability, and resources to evaluate each choice against the others.
Bounded rationality is a human decision-making process in which we attempt to satisfice, rather than optimize. In other words,
we seek a decision that will be good enough, rather than the best possible decision
.
Which of the following is an assumption of rationality to rational decision making?
Which of the following is an assumption of rationality to rational decision making?
Preferences are clear
. Final choice will maximise payoff. The problem is clear and unambiguous.
