Question

In: Economics

Microeconomics has traditionally been built on the foundation of rational choice.   However, since the 70’s insights...

Microeconomics has traditionally been built on the foundation of rational choice.   However, since the 70’s insights from blending psychology and economics have been changing the landscape.   Some have argued this new line of thinking, most often associated with behavioral economics, has laid waste to the micro model of choice.  

To what extent does the rational choice model have a future?   Can it absorb the new insights from behavioral? Do you think we will have two competing models of choice going forward?  

Solutions

Expert Solution

  • Reasonable decision is foundation of micro economics where it is accepted that consumer looks to maximize his utility or producer attempts to maximize his profit.
  • Yet, ongoing development of behavioral economics which has been formed by the brain research recommends that human no longer acts judiciously. Human as financial specialist will in general act irrationally. Human as financial specialist doesn't generally attempts to maximize his utility.
  • Behavior of consumer is influenced by the numerous factors, thus now and then he carries on irrationally. Feelings and Cognitive inclinations make consumers irrational.
  • Sound decision theory is not, at this point completely material in business world. Financial specialists are currently utilizing irrational theory to increase deals of corporates.
  • Future of sound decision will lose its significance in future. Henceforth, we would be seeing models of discernment and irrationality in future.

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