Panic buying – is it rational or irrational Panic buying is a situation where consumers buy an unusually large quantity of a good in anticipation of coming uncertainty. A related concept is ‘surge buying’ where people buy more than usual for rational reasons. Reasons for panic buying could include Health crisis which causes people to …
Readers Question: Is there an economic term for the phenomenon of ignoring (or turning a blind eye to) future risk, assuming that the current situation will prevail? I refer to the situation we currently see of both borrowers and lenders who are being caught by interest rate rises, having seemingly assumed that interest rates would …
This is the theory that there is only so much information that humans can be aware of. Therefore, when making decisions, we base them on a limited choice. They are rational given the limited choice and awareness of alternatives, but they rarely maximise total utility because people don’t want to take the time to fully …
Classical economic theory assumes that individuals are rational. However, in the real world, we often see irrational behaviour – decisions which don’t maximise utility but can cause a loss of economic welfare. Irrational behaviour is not just isolated to a few ‘irrational individuals’ but can become the dominant choice for most people in society (e.g. …
Definition of Rational expectations – an economic theory that states – when making decisions, individual agents will base their decisions on the best information available and learn from past trends. Rational expectations are the best guess for the future. Rational expectations suggest that although people may be wrong some of the time, on average they …
Following on from yesterday’s post. Is it rational to pay £1 for a bottle of water? This photo was taken at Stanstead Airport. You could easily take a bottle without paying. No-one would notice at all. It’s not even clear it would be a crime. Therefore, is it rational to pay? One logic is to …
Homo Economicus is a hypothetical concept that humans are: Self-interested Know what they want Make rational choices to maximise their utility. These choices are based on the concept of marginal utility. This concept of a rational economic man is an important cornerstone of neo-classical economic theory. It creates a framework to model how consumers and …
It’s hard to believe but there was a time in recent memory when the average worker could buy an average house for four times their salary. The post-war period was a golden era for home ownership. Home building rates were high and the average worker could buy an average house with a standard mortgage. Home …