Rational Decision Making

Rational Decision Making

An Economics Presentaion

Temi Onabajo, Daniel Yoroboua .

What does Rational Decision Making mean?

The term Rational Desicion Making refers to the process of making a decesion that has the most benefits in terms of the cost or the level of risk that involves

In Economics, the assuptions of this are that..- Consumers may consider this to maximise utility - Firms may do this to maximise profits

Why may consumers behave rationally ?

- The key aim of rational consumers is to maximise their own utility or satisfaction when making their choices.

The word utility simply refers to the total satisfaction or benefit derived from consuming a good or service.

The assumptions or Rational Economic Decision Making

This will differ dependent on the economic agent: - Households or consumers wish to maximise their utility or personal satisfaction - Firms wish to maximise their profits - Government wish to maximise the welfare of the population

Maximisation, What is it ? This is the act of raising to the highest possible point or condition or position. It occurs when an tries to gain the most they can from the current economic activity

agent

Economic agents have a variety of different economic objectives To meet these objectives, they have to use the factors of production

Behavioral Economics

In an ideal world, people would always make optimal decisions that provide them with the greatest benefit and satisfaction. In economics, rational choice theory states that when humans are presented with various options under the conditions of scarcity, they would choose the option that maximizes their individual satisfaction.

Behaving Rationally

What are they?

Behavioral Economics

Why may people not behave rationally?

1) Influence of others

The people around have a very key role in the decisions that we make, for example if we see our friends drinking alcohol then we are more likely to join in on them

2) Habitual Behaviours

This basically means that people are comfortable with thier choices and are reluctant to go and change, for example the tendency to stay with the same bank even thought other banks offer high interest rates

3) Making Sacrifices

This can include donating to charity

Thanks!

Thank You for Listening