For each of the following approaches that an economist might follow in examining a decision-making process, identify whether the approach relies on the rationality assumption or on the assumption of bounded rationality. An economic study of the number of online searches that individuals conduct before selecting a particular item to purchase online presumes that people are interested only in their own satisfaction, pursue their ultimate objectives, and consider every relevant option. An economist seeking to predict the effect that an increase in a state’s sales tax rate will have on consumers’ purchases of goods and services presumes that people are limited in their ability to process information about how the tax-rate increase will influence the after-tax prices those consumers will pay. To evaluate the impact of an increase in the range of choices that an individual confronts when deciding among devices for accessing the Internet, an economic researcher makes the assumption that the individual is unable to take into account every new Internet-access option available to her. Concept Introduction: Rationality assumption: The rationality is considered as the heart of the economics. It says that individuals choose the best decision for them with the available information. Bounded rationality: The concept of bounded rationality says that people are mostly but not completely rational, Bounded rationality also assumes that people as rational but that is limited by the information they have and their ability to quickly process the available information

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Chapter 1, Problem 11P

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To explain:

For each of the following approaches that an economist might follow in examining a decision-making process, identify whether the approach relies on the rationality assumption or on the assumption of bounded rationality.

An economic study of the number of online searches that individuals conduct before selecting a particular item to purchase online presumes that people are interested only in their own satisfaction, pursue their ultimate objectives, and consider every relevant option.

An economist seeking to predict the effect that an increase in a state’s sales tax rate will have on consumers’ purchases of goods and services presumes that people are limited in their ability to process information about how the tax-rate increase will influence the after-tax prices those consumers will pay.

To evaluate the impact of an increase in the range of choices that an individual confronts when deciding among devices for accessing the Internet, an economic researcher makes the assumption that the individual is unable to take into account every new Internet-access option available to her.

Concept Introduction:

Rationality assumption: The rationality is considered as the heart of the economics. It says that individuals choose the best decision for them with the available information.

Bounded rationality: The concept of bounded rationality says that people are mostly but not completely rational, Bounded rationality also assumes that people as rational but that is limited by the information they have and their ability to quickly process the available information

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