Economic Decision Making Essay example

Finally, in order to complete a more accurate comparison between the two projects, we utilized the EANPV as the deciding factor. Under current accepted financial practice, NPV is generally considered the most accurate method of predicting the performance of a potential project. The duration of the projects is different, one lasts four years and one lasts six years. To account for the variation in time frames for the projects and to further refine our selection we calculated the EANPV to compare performance on a yearly basis.

The next concept is “Decisions are made at the margin” this meant that individuals wanted to get the most out their resources. You want to have most benefits out your actions. One thing that the authors put emphasis on is the fact that all

People will engage in a trade, if both parties think that the benefit will outweigh the cost so that is when the trade occurs. If both parties do not believe in that they will not benefit from the trade, then the trade will not occur. A trade does not happen unless both parties think they will win. Trading created wealth in reality, so the benefits outweigh the cost. (pg 20)

Managers in many cases are presented with sales incentives in a retail environment. These incentives may range from free products, to cash prizes, to trips, bonuses, etc.

Using the data and your own economic knowledge, assess the case for financing universities mainly through charging fees to their students.

People make economic decisions on a daily basis, from choosing to go to the grocery store and cook dinner or going out to eat. While in the general scheme of things this is a relatively small decision to make it still can have impact on the economy. Yet a decision for a family to have a child is more of a major decision and has far more of an impact on the economy then a dinner decision. There are four basic principles to economic decision making and in the following I will list and explain these. I will also provide and an example of a decision that I have made in my personal experiences and what impact that has had or could have had

Kahneman’s article is an analysis of intuitive thinking and how it guides our decision-making. Although primarily aimed at the field of psychology, it is an interdisciplinary article with applications in economic theorising. Kahneman attempts to differentiate between two systems of thought, one of intuition (system 1) and one of reasoning (system 2), and argues that many judgements and choices are made intuitively, rather than with reason (a slower and more deliberate process). Intuitive decision making, which encompasses heuristics, although generally more efficient and rapid, makes the agent potentially subject to errors due to framing effects or violations of dominance. The analysis of the studies and theoretical situations also provides criticism of the commonly held model of the rational agent within economics. The article also further conceptualises Kahneman’s theory, the Prospect Theory (Kahneman & Tversky, 1979), which has descriptive applications of people’s choice in decision-making situations involving risk and known probability of outcomes. These situations are typically unexplained by the more normative rational agent model.

* Incentives-a promise of a reward in the future, as a result of particular behaviour or achievement-the element of ‘if…then’.

Incentives give better options to companies, and can help motivate or create better environments. In this text from an incentive brochure states “Travel is the most glamorous and promotable of all of the award options, with around 40 percent of incentive users choosing it. However, even more than merchandise, it’s a challenge to plan and manage. There are site inspections to be made, travel logistics to arrange, and meals, and entertainment that will please everyone”(Reward 2). The incentive is

Economics is the social science that deals with the production, distribution, and consumption of goods and services and with the theory and management of economies or economic systems. All economists agree on one thing, the economy is large and it is unpredictable. However, throughout the years economists have developed some simple but widely applicable principles that are useful when trying to understand decisions that are made by everyday people to the workings of highly complex markets. There are Seven Core Principles of Economics. These principles are: Scarcity Principle, Cost-Benefit Principle, Principle of Unequal Costs, Principle of Comparative Advantage, Principle of Increasing Opportunity Cost, Equilibrium Principle, and

What is the effect on the equilibrium price and equilibrium quantity of orange juice if the price of apple juice decreases and the wage rate paid to orange grove workers increases?

In the book Freakonomics, Steven Levitt and Stephen Dubner note “An incentive is a bullet, a lever, a key: an often-tiny object with astonishing power to change a situation” (16). This is to showcase the amount of power an incentive can have over a person or a situation; either good or bad. Humans are found to use incentives when it comes to making daily decisions. Often, people need motives to proceed with their plans. Some tend to make either moral, social, or economic incentive. The moral incentive is about self-respect; keeping in check with what was taught to believe is right and wrong. The social incentive is how the public views the person; wanting to look good in front others. Economic incentive, however, would relate to monetary benefit. While all three incentives can affect people’s decisions, economic

Economists have often modelled human decision makers as completely rational. According to this model, rational people know their own preferences, gather and accurately process all relevant information, and then make rational choices that advance their own interests. However, Herbert Simon won a Nobel Prize in economics by pointing out that people are rational, but only boundedly so in that they seldom gather all available information, they often do not accurately process the information

Opportunity cost is the value of the next best alternative in a decision. Imagine that you have $150 to see a concert. You can either see "Hot Stuff" or you can see "Good Times Band." Assume that you value Hot Stuff's concert at $225 and Good Times' concert at $150. Both concerts cost $150 per ticket, but it would take you a couple of hours to drive to Hot Stuff's concert and you have to be in school (the next) morning for an exam. Good Times' concert is right here in town. Explain how you would assess the opportunity cost of seeing Good Times in concert. What is the opportunity cost of going to Good Times' concert?

Incentives are seen everywhere in daily life and they appear in a variety of ways. Whether a person is making a choice between what to eat for lunch or when to go to bed, they are being influence by incentives. For example, images of an appealing lunch meal in a TV commercial may make someone choose Subway over Mcdonalds. However, the same thought process can motivate someone to prefer a meal at McDonalds because of the company’s constant promotion of their “dollar menu” (Mcdonalds, 2013). Either of these incentives can appeal to a person, depending on what they are motivated by, in this case, either health or money.