ECON 102 Lecture Notes - Lecture 3: Behavioral Economics, Bounded Rationality, Dependent And Independent Variables
1
ECON 102 Full Course Notes
Verified Note
1 document
Document Summary
Economics is an empirical science and uses models. Models: simplified representations of the real world used as the basis for predictions or explanations. Models are (cid:448)er(cid:455) si(cid:373)plified a(cid:374)d (cid:373)a(cid:455) la(cid:272)k (cid:862)real-(cid:449)orld(cid:863) realis(cid:373), (cid:271)ut are still useful. Example of familiar non-economics model- mini- toys. Example of an economics model- demand and supply, monopoly model. Models are useful if they predict economic phenomena accurately. Economic models predict how people act, not how they think. There is a growing field of economics that is a little bit more related to the thought process (or the limitations of our thought process) in decision making. Emphasizes psychological limitations and complications which may interfere with rational decision making. Bounded rationality: hypothesis that people are nearly, not fully, rational. We see that people cannot examine every choice available to them. Instead they use simple rules of thumb to sort alternatives. Economic models need to be built on a series of assumptions.
