Relative Differences And Absolute Differences

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.