Explain what is implied by the assumption that decision-makers are

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Explain what is implied by the assumption that decision-makers are rational? How is the assumption of rationality used in the economic analysis of individual behaviour? In many academic disciplines much is spoken about rationality and rational choices. Economists generally refer to 'rational' choices and that individuals in economic theory are rational. By rational we mean people choose options which they perceive to be the best, given the circumstances they are in. In terms of making rational choices some of the conceivable options for example of going to work would be: · Actually going to work. · Staying at home · Going out shopping · Buying a house · Fly to the moon etc. But with these choices we face…show more content…
However the consequences of making a choice that may seem rational is not always taken into consideration as in many cases the choice taken may be actually irrational. For example, somebody deciding or not they should buy a sandwich with limited money, will certainly consider the immediate satisfaction of their hunger, but it is dependant on the individual how much importance they would give to the fact that they wouldn't be able to get the bus back home later that night and would catch a cold from walking back, resulting in days off work and subsequent loss of income. It could be said therefore that anyone who bought the sandwich would be considered 'irrational'. The assumption that one is always in possession of all their rational senses is a dangerous one to make. It can hardly be assumed that the decision of anyone already very drunk on a night out to buy another alcoholic beverage to be rational .They know that it will result in them being violently sick and lead to them regretting the purchase in the morning, yet this does occur as their intoxicated state has robbed them of the power of 'rational' thought. The same can be said of other conditions such as stress and being in love. In terms of decision-makers, rational decision making operates where "a decider in an environment must choose among alternative courses of action, each leading to a different expected environmental outcome, where some outcomes are

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