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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.
- Bounded rationality theory looks at the ways we don't or can't act like homo economicus. It sees people as rational but limited by the information they possess and their ability to process that information.
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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 thi...
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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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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 thi...
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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