Economists assume people make decisions based on goals.
Laisse faire--hands off,the govt will try its best to keep off of economic affairs
Varian "theory allows us to interpolate from what we observe to what we don't
observe." Naive empiricism can only predict what has happened in the past.It is
the theory--the underlying model--that allows us to extrapolate.
Economists assume that we optimize--making the best possible decision
Consumers maximize utility--well being,happiness,satisfaction
Utility is measured indirectly with willingness to pay,not utiles
Willingness to pay--how much would you pay without knowing what these things
are worth and what is it worth doing/time spending?VS.price!!
The ﬁrst formal economic theories assumed that decision makers are
- completely informed about the possible courses of action and their
- inﬁnitely sensitive to difference among alternatives
- rational in the sense that they can rank other the possible choice and make
decisions that maximize some subjective measure of value or welfare--usually
designated by the term utility
"You must not impute your own value systems or standards of rationality to
others,and assume that they would act as you would in that situation." Dixit and
Saying someone is stupid because they're doing something you don't like is
wrong.They probably have a reason for doing it.Assume there is some rationale
U(x) there is some functional form of utility over consumption.A mathematical