Rational Decision Making
Rational decision making is the process of comparing marginal costs and marginal benefits of alternatives to make the choice that maximises net benefit. Economic models assume rational agents make self-interested choices based on available information to maximise utility (consumers) or profit (firms).
Real World
When Netflix raised its UK subscription price to £10.99 in 2024, many consumers compared the marginal cost against alternatives like Disney+ at £7.99, cancelling Netflix if the extra benefit no longer justified the higher price.
Exam Focus
State the assumption of rationality first, then use behavioural economics (e.g. bounded rationality, biases) as evaluation.
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