ECON 1 Lecture Notes - Lecture 16: Satisficing, Fallacy, Prospect Theory
Document Summary
& objective & subjective decision making: classical decision theory (objective) The model of economic man and woman. People often believe they decide, following this model even though they don"t, and they can"t. The assumption of infinite sensitivity means that people can evaluate the difference between two outcomes, no matter how subtle the distinction among options may be. The assumption of rationality means that people make their choices to maximize something of value, whatever that something may be. Taking into account every aspect of a decision, evaluating each aspect, computing an average, deciding based on that. You are less satisfied when there are many options. Goal of human action is to maximize pleasure (positive utility) and minimize pain (negative utility) Based on individual"s judged weightings of utility (value), not objective criteria. Also, like the other one non-descriptive, but normative. We are more risk averse because loss is a lot worse than gain.
