rational decision making

• What does utility refer to in economic terms?

  Satisfaction gained from consuming a product
• What is the term used for a rational consumer?

  Homo Economicus
• How does Homo Economicus make decisions?

  By calculating the utility gained from each decision
• Why do firms aim to maximise profit?

  To keep shareholders happy
• Why should governments aim to maximise social welfare?


  Because they work for the public
• What are the underlying assumptions of rational economic decision making?

  • Consumers aim to maximise utility
  • Firms aim to maximise profit
  • Governments aim to maximise social welfare
• What is currently being questioned by behavioral economists?

  The assumptions of rational economic decision making
• What do behavioral economists argue about economic agents?

  They lack necessary information to act rationally
• How do consumers often make decisions according to behavioral economists?

  They do not always make calculated decisions
• shareholders are owners of a company who receive financial rewards