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Rationality Video.docx

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Geography 3422A/B
Milford Green

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Rationality Video 9/16/2012 7:50:00 PM Rationality  When it comes to money, people can make irrational decisions  Gary Becker – principle of economics and rationality  Adam Smith – people working in their self interest could coordinate in markets and create positive outcomes o Individuals behaving rationally creates an invisible hand o People generally try to benefit themselves  Consumer behaviour model – we never buy anything until we have weighted the cost to our benefit o People behave “as if” they are constantly calculating benefits o Idea is to keep regulation and government interference to a minimum  Global economy comes to a halt in 2008 o Had the power to cause great consequences o Economics didn’t see it coming, couldn’t predict it  Are people rational about money? Or do emotions come into play? o Rational model – person should never pay over $20 for a $20 bill o Emotional model – the emotional desire to win that pulls the bid over what the item is actual worth  Desires for quick rewards today, trumps rational decisions  Emotions can influence peoples opinions of prices  Irrational exuberance – a view that prices are higher than the ought to be o Housing markets in 2005 – low down payments, with great mortgage deals and housing prices on the rise – thought to reflect strong economics fundamentals
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