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A new theory of economic decision-making from Mina Mahmoudi, a lecturer in the Department of Economics at Rensselaer Polytechnic Institute, offers an explanation as to why humans, in general, make decisions that are simply adequate, not optimal.
In research published in the Review of Behavioral Economics, Dr. Mahmoudi theorizes an aspect of relative thinking explaining people may use ratios in their decision-making when they should only use absolute differences. The inverse is also possible.
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MORE IDEAS ON THIS
Past studies have shown that when given the opportunity to save, for example, $5 on a $25 item or a $500 item, people in general would put in more effort to save the money on the lower-cost product than the more expensive item.
They believe they are getting a bette...
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“Effectively solving some economic problems requires one to think in terms of differences while others require one to think in terms of ratios,” Dr. Mahmoudi said.
“Because both types of thinking are necessary, it is reasonable to think people deve...
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“Understanding how the cognitive and motivational characteristics of human beings and the operating procedures of organizations influence the working of economic systems is of critical importance,” Dr. Mahmoudi said.
“Many economic behaviors such as imitation oc...
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CURATED FROM
neurosciencenews.com
4 ideas
·1.07K reads
IDEAS CURATED BY
People consider relative differences and not only absolute differences when making various economics decisions, even in those cases where the rational model dictates that people should consider only absolute differences. A new theory seeks to explain why.
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Other curated ideas on this topic:
1. Planning Poker: All participants use numbered playing cards and estimate the items. Voting is done anonymous and discussion is raised when there are large differences. Voting is repeated till the whole team reached consensus about the accurate estimation. Planning poker works well when you hav...
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