Running Head: ECONOMICS ASSIGNMENT 2
ECONOMICS ASSIGNMENT 2
Assumptions Addressed in the Article
Economists assume that when making a decision, all humans conduct a cost to benefit analysis. A cost to benefit analysis relates the cost of partaking in an activity to the benefit that will be enjoyed by the individual. Economists assume that individuals will select the choice that guarantees the best outcome and requires a minimum cost. Such a notion is very important when developing the sad theory because it creates uniformity amongst all factors. When applying these models, people need to factor these assumptions because the theoretical expectations may not match the practical application. For instance, if a marketing firm assumes that all the consumers will select its product based on rationality, it may be disappointed by the actual sales. People are different and have different values and opinions which affects how they make their decisions (Pfister and Böhm, 2008).
Opportunity Cost to Chris in the Scenario
Chris did not examine the opportunity costs that would be accrued when he decided to go home and play PlayStation. PlayStation is very addictive and entertaining and therefore there is a chance that Chris would spend the whole night playing. As a result, he would not be able to catalogue his stamp collection which he planned to do after leaving the bar. If he decided to order another drink, Chris would have enjoyed himself for the rest of the night. Also, since he was alone, staying at the bar would be an opportunity to meet new people and make new friends. Chris, therefore, missed out on a pleasurable social experience by making the decision to go home and play PlayStation.
Jessica’s Argument on Rationality
Jessica claims that ordinary people cannot escape the effects of hangovers because they cannot make rational decisions. Human beings do not consider other opportunities that may be available when making decisions. Also, they tend to fall prey to social pressures and end up feeding their addictions. Jessica also claims that human beings cannot make rational decisions especially after having a few beers. All the arguments presented by Jessica are true because it is scientifically proven that alcohol distorts an individual’s mental abilities. Also, while at the bar, the individual may be tempted to overspend or have a good time with their friends. Furthermore, people associate alcohol with happiness and therefore cannot consider any other channels for relaxation.
How Rational People Make Decisions
Economists assume that human beings can exercise rational behaviour when making their decisions. Hastie and Dawes, (2010) define rational behaviour as the integral component of decision-making wherein an...