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Economic rationality
We usually think about rationality as being sensible or reasonable. For economists, rationality means when you make a choice, you will choose the thing you like best. Economic rationality accepts that people will act in a relatively predictable way.
Economists use this assumption to build economic models or theories. A famous theory is the law of supply and demand which states that if something costs more, rational people will probably want to buy less of it and sell more of it.
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'Rational choice theory' and 'Bounded rationality theory'
- Rational choice theory thinks of people as economic super-men and women, also known as homo economicus. Economists use this theory to think about what 'economic man' would do, then add up the actions of billions of people to make models about how the economy works.
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"There's no money in poetry, but then there's no poetry in money, either." ~ Robert Graves
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Other curated ideas on this topic:
'Rational choice theory' and 'Bounded rationality theory'
- Rational choice theory thinks of people as economic super-men and women, also known as homo economicus. Economists use this theory to think about what 'economic man' would do, then add up the actions of billions of people to make models about how the economy works.
Modelling motivation: rationality, signaling and bias
- Rational choice theory suggests that human behaviour is underpinned by the motivations of each individual. More specifically, this theory models human beings as utility-maximizers, according to a set of preferences. If you give people a set of actions to choose from, th...
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