Individual Economic Decision Making

• Utility

  Benefit or satisfaction
• Marginal Utility

  The additional satisfaction from consuming an extra unit
• Total Utility

  The total satisfaction from consuming all units
• Diminishing Marginal Utility

  As you consume more of a good, the marginal utility you get from consuming an additional unit will decrease
• Rational Decision Making

  A consumer behaves rationally if they make decisions which maximise their own utility
• Causes of Irrational Decision Making

  • bounded rationality
  • bounded self-control
  • altruism
  • Herding (social norms)
  • anchoring bias
  • availability bias
  • rules of thumb. 
• Behavioural Economic Policies

  • Choice Architecture
  • Nudges
  • Framing
  • Restricted Choices
  • Mandated Choice
  • Default Choice
• Behavioural Economic Polices Can

  • Reduce the Consumption of a Demerit Good (Eg smoking)
  • Increase the Consumption of a Merit Good (Eg Organ Donation)