Rational Vs. Rational Behavior

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(A) Rational Behavior (16) (1) Most economists base their analysis on the assumption that people act rationally. Discuss the assumption that the authors say that the notion of rational behavior is based on. (6) a. The notion of rational behavior is based on three assumptions. The first is that the individual has a preference and can identify, within limits, and what he or she wants. Second, that the individual can order his or her wants consistently, from most preferred to least preferred. Lastly, that the individual will chose consistently from these ordered preferences to maximize his or her satisfaction. Overall, the assumption of rational self-interest rule for human behavior will allow anything if the marginal benefit exceeds the…show more content…
Why don’t these issues invalidate the assumption of rational behavior? (6) a. The fact that not everyone follows the rule of rational self-interest all the time does not invalidate the assumption of rational behavior, because economic models are non-obvious predictions that have been confirmed repeatedly. These issues also don’t invalidate the assumption of rational behavior, because economist write and talk as if people are perfectly rational. It’s not because they believe the people’s decisions are never prone to error. If economists assume that people are imperfectly rational, then it would be found unnecessarily difficult to model human thinking and decision making and to gain insight through the development of logical deductions and test hypotheses. (B) The Logic of Group Behavior (14) (1) Explain the “common interest logic” and the “economic logic” of group behavior in terms of the likelihood of the success of groups. (8) a. The common interest logic of the group behavior in terms of the likelihood of the success of groups works, because the group can be treated as one individual instead of many. The actions of individuals within the group are combined to create a force that is greater than by one individual. The group works efficiently to coordinate all their efforts, which creates even more incentives to work together to pursue a goal. The economic logic of the group behavior in terms of the of the
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