Question

Describe at least three ways in which human decision making differs from that of
the rational individual of conventional economic theory.

Answer 1

1) Rational behavior refers to a decision-making process that is based on making choices that result in an optimal level of benefit or utility.

2) Rational behavior does not necessarily require a person to attempt to get the highest return but rather the highest optimal benefit based on key factors for concern.

3) Several financial and economic areas of study are built on the underlying examination of rational behavior including rational choice theory, behavioral finance, and behavioral economics.