In “The Economic Approach to Human Behavior,” Gary Becker describes his explanation of “the economic approach” as being how individuals choose the price they are willing to pay for a good as a rational choice determined by the payoff of the good, based on their preferences for that good. Becker believes that prices, preferences, payoffs, and costs may include intangibles or unknowns. Thus Becker’s “economic approach to human behavior” is the belief that any human decision can be explained by a cost-benefit analysis by the decision-maker with the available information, where he/she decides the utility gained by making that choice is greater than the cost. The amount of information collected to make a decision is also determined by the preferences toward the amount of information necessary to make a decision and cost of acquiring that information. He believes that just because the preferences behind an individual’s decision are not understood, does not mean that individual did not make a rational decision. Using this approach, all human behavior and decisions can be rationalized because the approach explains how individuals make their decisions, not necessarily the specifics of why.
The “economic approach to human behavior” is capable of explaining all human actions and behavior because it accounts for unknowns that are not necessarily explicitly explained in the approach. Any factor leading to a decision that is unexplained is still considered a change in preferences; Becker cites aging as an example. People’s preferences change as they get older, leading to different decisions. The changing of the biology in the brain can lead to preferences that change over time, such as the need for less sleep as one gets older. The e...
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...er approaches to economics may be more specific in defining outcomes with given information, the economic approach as explained by Becker is more adaptable to all situations. Becker’s economic approach is limited when compared to other methods of explaining human behavior in that it can only provide context for the procedure of decision-making. Even though his approach is limited, it does explain what others may consider “irrational” behavior as still being part of rational decision-making, leading to Becker’s economic approach being applicable to “all human motivation and behavior.”
Works Cited
Becker, Gary. 1986. "Chapter 4: The Economic Approach to Human Behavior." In: Rational Choice. New York: New York University Press.
ThirteenWNET. Curious: Decisions, Decisions. Steven Quartz and Colin Camerer. 27 Aug. 2008. .
[6] Turley Mings and Matthew Marlin, [The Study of Economics: Principles, Concepts & Applications] (Dushkin McGraw-Hill, 2000) 413-414.
It has been noted from the text that our perception influences the thinking and decisions we make. It shows that choices differ because of the different understanding that individual have. In addition, our intuition is essential and at many times it provides us with guidance on how to make decisions. However, we can see that this intuition can be misleading at times and therefore the best thing is to evaluate the available evidence before making decisions. In my view decision making tends to have disciplinary across individuals. The best thing can be is to take time and individuals should not rush when it comes to making critical decisions. It is because of the outcomes that might be expected in the
Hubbard, R. G., & O'Brien, A. P. (2010). Economics (3rd ed.). Boston, MA: Pearson Hall.
McConnell, C., Brue, S., & Flynn, S. (2012).Economics: principles, problems, and policies. (19 ed., p. 375-390). McGraw-Hill/Irwin. Retrieved from http://online.vitalsource.com/books/0077771699/id/L4-1-1
Cook, K., Levi, M., O'Brien, J., & Faye, H. (2008). Introduction: The limits of rationality. In K. Cook & M. Levi (Eds.), The Limits of Rationality (pp. 02-47). Retrieved from http://books.google.com/books?hl=en&lr=&id=7M82yReFf4sC&oi=fnd&pg=PR7&dq=social exchange and rational choice theory definition
The problem of free will and determinism is a mystery about what human beings are able to do. The best way to describe it is to think of the alternatives taken into consideration when someone is deciding what to do, as being parts of various “alternative features” (Van-Inwagen). Robert Kane argues for a new version of libertarianism with an indeterminist element. He believes that deeper freedom is not an illusion. Derk Pereboom takes an agnostic approach about causal determinism and sees himself as a hard incompatibilist. I will argue against Kane and for Pereboom, because I believe that Kane struggles to present an argument that is compatible with the latest scientific views of the world.
The decision-making model not as simple as selfish or self-interest, it’s the “theory of human choice based on scientific principles of observation and experiment”, but not “postulation and deduction” (page 397). Observation reflects it has been learned or acknowledged from patient look or research about the cause and effect, experiment means it has been thought, be consider the pros and cons. Even though it might not be think over and think through, it must be different than “creating something out of nothing”. There are four princi...
Rational choice theory, developed by Ronald Clarke and Derek Cornish in 1985, is a revival of Cesare Becca...
These are the means that are useful to everyone for achieving and developing their plan of life (Angier, 2015: slide 14), e.g. money and self-respect. And thus, with choices being behind the veil of ignorance in the original position, will allow us to maximise the share of these primary goods in an equal manner (Leif, 2013).
Abel, Donald C., ed. Theories of Human Nature: Classical and Contemporary Readings. New York: McGraw-Hill, 1992.
An 'economic cost-benefit analysis' approach to reasoning sees actions favoured and chosen if the benefit outweighs the cost. Here, the benefits and costs are in the form of economic benefits and costs, such as, monetary loss or profit. One who is motivated by such an approach will deem a course of action preferable if doing so results in an economic profit. Conversely, actions will be avoided if they result in an economic loss (Kelman 1981).
According to Aumann (2000), “The nash equilibrium and most of its variants express the idea that each player individually maximizes his utility…” (p. 23). While making a decision, players are thought to consider what other player(s) will most likely do, each one if multiple, in order to predict how to get the best outcome. Players attempting to attain the best payoff have been explained in game theory by common knowledge and rationality assumptions in order to understand the other players. Common knowledge is the general information about the specifications of the game and knowing that each player knows it, that each player knows each other knows it and so on (Colman, 2016). Rationality means players are always making decisions to obtain the highest payoff based on their knowledge, which is also considered common knowledge (Colman, 2016). Together, these are fundamental components to game theory and help us understand the underlying structure to decision-making in
This approach to decision-making may be easy for some people and difficult for others. For example, a Christian might use their faith in God and his teachings when reasoning. Expected Utility Theory has been used to explain the process of decision-making. This is the idea that people simply observe the decision, identity the value of each decision and choose the option that will result in the maximum level of the desired outcome. A common explanation for why people sometimes find this approach difficult can be explained by the prospect theory (Kahneman and Tversky). This can be summarised as the belief that people naturally tend to evaluate the psychological aspects of a decision rather than make a quick decision on what is wholly rational. For example, gambling. If someone was offered a role of a dice for anything under a 5 to gain £100, but would lose £50 if it was a 5 or above, people are more likely to turn down the offer as there is a reasonable risk that they may lose their money. This is known as loss aversion. Generally, I don’t think advanced training in areas such as statistics, economics and psychology would help people to make decisions that are more economically rewarding as I believe that autonomy is innate in human beings, therefore, I think people would decide what they truly wish to. However, I do think that people may use this advanced training, when they are
For instance, when the price of Coca-Cola goes up, people drink more Pepsi. It is logical. And for the same reason, when laws are hardened and penalties are higher, crime decreases; as logical as a worker incentive in exchange for results, try harder. These behavioral changes can be explained from economic theories, and not because they have to do with the money but because economics is the study of rational behavior and rational people respond to rewards and stimuli. When the costs or benefits of some change, people change their behavior. But, could you move this simple theory to all areas of our lives? Sex, society, war, love, racism, labor relations, politics or the
Kahneman, D., Krueger, A. B., Schkade, D., Schwarz, N., & Stone, A. A. (2006). Would You Be Happier If You Were Richer? A Focusing Illusion. Science, 312, 1908-1910.