Decision-making under certainty
- What kind of decision-making model exist for "Classical economics" and "Behavioral Economics"
Classical economics -> rational (choice) model
Behavioral Economics -> behavioral model & procedurally rational model
Decision-making under certainty
- Model of decision-making in classical economics:
Classical economics accepts that the homo oeconomicus is not a realistic depiction of human behavior but is used as a simplifying assumption in economic models (models have to simplify reality)
Decision-making under certainty
- Describe the "behavioral model" of decision-making in behavioral economics:
Description of behavior that deviates (abweichen) from rational behavior
Decision-making under certainty
- What are advantages and limitations of the "behavioral model" of decision-making in behavioral economics:
Advantages of the model:
Limitations of the model:
Limitations of the model
Decision-making under certainty
- Describe the "procedurally rational model" of behavioral economics
people act with limited rationality = «bounded rationality»
More realistic model of problem solving, because humans have:
Principle: Investing a reasonable amount of resources in the decisionmaking
process to achieve a satisfying result -> rule of thumb: You can get headphones from about
10 CHF. If I spend 70 CHF, I should get a pretty decent model.
-> a reasonable amount of resources is invested in the decision-making process to achieve a satisfying result
-> it is neither advisable nor possible to maximize utility -> (1) not all information is available, (2) trade-off between invested time and gained ut
Decision-making under certainty
- What are the advantages of the "procedurally rational model" of behavioral economics
Decision-making under certainty
- What are the advantages of classical economics and behavioral economics?
to explain, predict and influence human decision making in the economic context
Decision-making under certainty
- Which role plays the "utility" from the classical economics and behavioral economics perspective?
Concept of «utility» plays an important role in economic decision-making Utility according to economic theory:
= Total satisfaction received from consuming a good or service