Rational economic behavior

J

jahid_107

New member
Joined
Jun 18, 2026
Messages
0
Reaction score
0
Rational economic man concept make be disconcerted. Anyone please explain in simple language.
 
A decision-making process that is based on making choices that result in the most optimal level of benefit or utility for the individual.
#duh
 
hashtag wrote:
A decision-making process that is based on making choices that result in the most optimal level of benefit or utility for the individual.
#duh
Click to expand...
The utility maximizing decision made by individuals ignoring impact on others.
 
jahid_107 wrote:
hashtag wrote:
A decision-making process that is based on making choices that result in the most optimal level of benefit or utility for the individual.
#duh
Click to expand...
The utility maximizing decision made by individuals ignoring impact on others.
Click to expand...
The rational agent is assumed to take account of available information, probabilities of events, and potential costs and benefits in determining preferences, and to act consistently in choosing the self-determined best choice of action.
#obviously
 
Anyone who rationaly take his or her decision. A person who made his decision to buy Google stock because he has done a through analysis before the decision is considered rational decision. on the other hand, a person who invest in apple stock because his friend bought is a typical non rational decision.
 
Actually this is simply the investor that acts like a machine and makes decisions based on algorithms and computations like the ones you have learnt in your regular finance course and that you are still learning everywhere at Level III except in the Behavioral finance chapter. He is even capable of modeling quite subjective parameters such as risk acceptance and utility, in a very systematic and consistent manner.
Even the decisions and assumptions that are judgmental, he is able to approach them in a very systematic manner, without getting influenced by his emotions or committing any reasoning error.
The fact that he is ignoring the impact of his decisions on others is just one of his characteristics among others. The traditional finance models do not foresee any space for inputs such as environmental or social impacts.
This is all just for your understanding, but do not reuse the words I am using above. Once you get the idea, you should just get used and learn the vocabulary that is attached to the concept of REM in the material. You should know the key words and concepts attached, in opposition to the characteristics of the investor described by the behavioral finance theory.
 
26d. from last year..(L2) - it was a L3 LOS before..
compare the Friedman doctrine, Utilitarianism, Kantian Ethics, and Rights and
Justice Theories as approaches to ethical decision making.
 
You must log in or register to reply here.
Back
Top