Chapter 1, Problem 10P

To determine

To explain:

Whether the decision-making process relies on the rationality assumption or on the assumption of bounded rationality.

1. To make predictions about how many apps a person will download onto her tablet device, an economist presumes that the individual faces limitations that make it impossible for her to examine every possible choice among relevant apps.
2. In evaluating the price that an individual will be willing to pay for a given quantity of a particular type of health-care service, a researcher assumes that the person considers all relevant health-care options in pursuit of his own long-term satisfaction with resulting health outcomes.
3. To determine the amount of time that a person will decide to devote to watching online videos each week, an economist makes the assumption that the individual will feel overwhelmed by the sheer volume of videos available online and will respond by using a rule of thumb.

Concept Introduction:

Rationality assumption: The rationality is considered as the heart of the economics. It says that individuals choose the best decision for them with the available information.

Bounded rationality: The concept of bounded rationality says that people are mostly but not completely rational, Bounded rationality also assumes that people as rational but that is limited by the information they have and their ability to quickly process the available information