Question

If society uses rational behavior why do some lottery winners go broke? The bulk of economic analysis continue to reply on rational assumptions. Economist continue to contend that rational thought is a reasonable viewpoint. Is this a micro or macroeconomic issue? Is this a reasonable assumption? Is this a positive or normative assumption? How does self-interest come into play? Explain why economics a science or a social science?

Answer 1

Rational behavior.

• Instead of behave in ways that are predictable, sensible and logical, this type of behavior is known as Rational behavior.
• To behave rationally, we make decision and act in ways that beast achieve our needs.
• Rational behavior is goal oriented.
• Rational behavior occurs when we are pursuing goals in accordance with their preferences and priorities

1) If society uses rational behavior why do some lottery winners go broke.

Reasons:

1. Tax obligation create various complications.
2. The payout is much less than expected.
3. Mental accounting changes how they think of money.
4. No financial advise and Plans.
5. They spent uncontrollably on things they don't need.
6. Bigger home and Fancier vehicles mean more bills.
7. They make bad investment trying to earn more money.
8. No savings
9. Social media makes it difficult to hide the fact that you have won.
10. They may slip into depression and spend more on drugs and alcohol.

Economist always assumes the rational behavior is this a reasonable assumption:

• Rational behavior assumption is not always correct. In the broad sense person behaves rationally but in many times he get influenced by the emotion or other circumstances.
• When emotions occur at the moment of decision and are directly related, than person not behaves rationally.
• Incidental emotions also effects the rational behavior. example: I am very happy because my team has win the cup and now i m choosing what to have for dinner. The economist believes purely on rational behavior would say that my happiness should not affect what I eat.
• It is proof that the incidental emotions affects our judgement decision making and reasoning.

Is rational behavior assumption is a reasonable assumption? positive or normative assumption? how does self interest come into play.

• The rational behavior assumption is a reasonable assumption, because normal person always behaves rationally and think about his more advantage untill and unless any emotional dilemma occurs . Conclusion is this that the Rational behavior theory is suitable in most of cases unless there is some unusual situation.
• Rational behavior assumption is positive assumption declared by the science
• In any circumstances where a person can get more benefit but the activity is illegal or against any public policy, the self interest come into picture and person behaves rationally for more benefit.

Why economics is science or social science

• Economics is regarded as a social science because it uses scientific method to build theories that can help to explain the behavior of individuals, groups and organization.
• Economics attempts to explain economic behavior which arises when scarce resources are exchanged.
• Economics can never be exact science, and is a different kind of discipline.
• Science has the laws but the laws of economics are depends on the behavior of the individual, firm or industry, hence the economics is the social science and not the science