My Online Shopping Experience On Why Individuals Are Not Rational

The book, Common Sense Economics written by James D. Gwartney, Ricahrd L.Stroup, Dwight R. Lee, and Tawni Ferrarini, gives a simple insight for reader into the inner workings economics in a common sense terms. The main point of the book is that to have economic success comes from low interference from the government, the motivation of individuals, and competitive markets.

1. “The peculiar character of the problem of a rational economic order is determined precisely by the fact that the knowledge of the circumstances of which we must make use never exists in concentrated or integrated form, but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess (H.3)”

A famous writer for the New Yorker, Malcolm Gladwell has written an article, “The Science of Shopping”, which is based on Paco Underhill’s study of retail anthropology. The intention of a retail store is obvious- that is to attract customers and convince them to perchance as much as they can. There is so much knowledge that we can study, such that how the environment affects people’s thinking. These are tiny details that we don’t usually think about. The reason of how Paco Underhill success is because he notices these details. Details determine success or failure. Paco Undnerhill—a talent and passion environmental psychologist, provides us a new point of view of the science of displaying products,

Stone argues that in the market model people and government look to capitalize on making the best decision that will benefit themselves given perfect or almost perfect information. The market model requires

First, we assume that all of these entities have unlimited wants. This assumption forms the basis of economics. It is the study of how entities try to fulfill these unlimited wants when confronted with limited resources. Second, we assume that all of these entities are rational actors. We assume that they typically act in ways that will help to achieve their goals. This allows us to understand their actions which we would not be able to do if we assumed that they constantly acted on the basis of whims.

Can greed and self-interest benefit our society’s economy? majority of people would say, but one man by the name of Adam Smith would’ve disagreed. he believed that profit motive even greed could be good for the economy. This very theory spiraled an onset of controversies and debates. However, his theory shined in the right light; justified is the best solution for the economy.

The third principle of individual economic decision-making relates to marginal decision-making. Rational people will think at the marginal level, making small changes or tweaks in their plans to achieve the desired objective. Rational people normally have a certain system or method he/she uses to achieve their objective and they understand that sometimes small changes must be made to accomplish this.

Behavioural economics is the study of the effects that psychology has on the decision making of the economy. This tends to be the way that people think and feel when they are spending money on a certain good or service. The great economist Adam Smith was the first follower of this idea through his book “The theory of moral sentiments” which dates back to 1759. However, it took over 100 years to get a more clarified meaning of how big of a role the psychology of a buyer plays in economics. In behavioural economics there are seven basic principles which all contribute to the decision making process. Behavioural economics can explain how people will react to different situations such as times when there are no economic problems and times when

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

For example, when a good is scarce, the prices goes up, so consumers try to avoid buying and therefore conserving the resource. Then, the suppliers want to find more of the source as to get a better profit. The reasons behind their actions are selfish, yet they benefit all of society. Smith identified that the pursuit of profit and the power of self-interest would increase motivation and result in more advances in technology. His model of capitalism was on the basis of freedom and selfishness as a motivator for society. It was also on the basis that the economy would go through recessions and expansions but fix itself. Recessions are periods in the economy in which unemployment goes up, while profits and spending goes down; a slowdown of the economy. An expansion is essentially the exact opposite. The classical model of economics states that the economy will continue to go through these fluctuations over time and will fix itself with no help, thus not needing a government to give influence.

He argued that every human being has unique preferences which greatly influence them when making choices (Breen and Rottman 1995). People are mostly motivated by money and are likely to carry out a cost-benefit analysis before settling on a decision. It is based on the following premises: human behavior is based on rational calculations, human beings act with rationality when making choices and these choices are aimed at maximizing gains or pleasure. In a similar manner, Interactionist Theory (IT) is used to study social interactions among people. It does not study the entire population at once, but rather studies smaller social groups. It focuses on how individuals act and how they make behavioral choices depending on the way they interpret situations (Hindess, 1998, p.42). From another perspective, it states that human beings only react to social stimuli. As such, they are social actors, and must adjust their behaviors in consideration to the behaviors of other human

The topic I have chosen to write this research paper over is the rational choice theory. The rational choice theory started with the work of Cesare Beccaria in the late eighteenth century. From that point forward, the theory has been developed and opened up to incorporate different viewpoints, like discouragement and routine activity theory. The rational choice theory is a monetary rule that expresses that people dependably settle on reasonable and legitimate choices. These choices furnish individuals with the best advantage or fulfillment, given the decisions accessible and are likewise in their most elevated self-interest.

My independent research in the field started with my curious interest in the processes of how decisions made by individuals and governments, what are the main factors encouraged them to choose particular decision over other options and the outcomes of those decisions. Then, I started to read theories of great Economists, such as, Keynes, Freidman , Devenport, Kinnerly and Mason who wrote on decision-making and the ability of individual to interpret the information. Additionally, there were theories by De Bondt , Clark , Tversky and Kehnman who argued that human psychology is interconnected with economics which cannot be ignored. Learning those theories and comparing them with the real life happenings, my enthusiasm to get deeper insights of economics increased. Encouraged by this, I have compiled

Adam Smith (1723-1790) was one of the greatest economists in the world with his concept of the “Invisible Hand”. The “Invisible Hand” explains the reasons why people do things in the market based on the principles of supply and demand. This theory also creates an economic system called free market or liberal market. This type of market has some main features namely, no governmental interventions and high competition. Adam Smith’s theory is interesting because he was the first one to set up the idea of a “market” that still exists now. The aim of this essay is to give an overview of the “Invisible hand”, analyze advantages and disadvantages of

The study of an economic world is a complex and unpredictable undertaking, involving people buying, selling, investing, bargaining and persuading. As a result of it being broad and complex, it is divided into many disciplines to make reason from information given by the economy.