Monday

 

Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed.
PART 7 Topics for Further Study
Chapter 22 of 36 Frontiers of Microeconomics
Section 10 of 16
…
The three topics of chapter 22:
1- the economics of asymmetric information
2- political economy
3- behavioral economics
…
3-Behavioral economics.
Like economics, the social science of psychology is a study of choices people make.
Because they mostly address different questions, the studies of economics and psychology are usually independent.
Economics assumes a "rational actor."
Its questions focus on allocation, incentives, and equilibrium.
Psychology doesn’t assume humans are rational.
Its questions focus on the internal mechanisms of behavior - why we think and feel the way we do.
…
Recently the field of behavioral economics has emerged, in which economists use basic psychology insights.
We’ll consider these insights here:
· people aren't always rational
· people care about fairness
· people are inconsistent over time
…
People aren't always rational.
Economic theory is populated with a particular species, sometimes called Homo Economicus.
Members of this species are always rational.
As firm managers, they want to maximize profits.
As consumers, they want to maximize satisfaction.
Within the constraints they face, they rationally evaluate all costs and benefits and always choose the best possible action.
However, real people are Homo Sapiens.
In many ways they resemble the rational, calculating people assumed in economic theory.
But people are more complex, they can be forgetful, impulsive, confused, emotional, and shortsighted.
…
These imperfections of human reasoning are the main study area of psychologists and until recently, economists neglected them.
Herbert Simon, one of the first social scientists to work at the boundary of economics and psychology suggested humans should be viewed not as rational maximizers but as “satisficers.”
Rather than always choosing the best course of action, they often make decisions that are good enough.
Some economists have suggested humans are only "near rational," with "bounded rationality."
People can take an irrational chance on something because some serendipity can be more satisfying than making a completely rational choice, a somewhat rough life can be more satisfying than a completely smooth life.
… …
Herbert Simon’s term “satisficers.”
Gemini:
Herbert Simon (1916~2001), a Nobel Prize-winning economist and psychologist, coined the term "satisficing" to describe a decision-making strategy that settles for a "good enough" option rather than the absolute best one.
The word is a portmanteau [blended word] of "satisfy" and "suffice."
It serves as a cornerstone of Simon's broader theory of bounded rationality, which argues human beings lack the time, information, and mental "bandwidth" to make perfectly optimal choices.
Satisficers look at available options until they find one that meets their minimum threshold (aspiration level).
Once they find it, they stop searching and make the choice.
Maximizers (or optimizers) attempt to evaluate every possible alternative to ensure they are making the absolute best choice.
… …
minimum threshold
saishou shikiichi