Author Question: Outline subjective expected utility theory. What will be an ideal ... (Read 141 times)

ec501234

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Outline subjective expected utility theory.
 
  What will be an ideal response?

Question 2

What are the three main assumptions of the model of economic man and woman?
 
  What will be an ideal response?



Jadwiga9

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Answer to Question 1

According to subjective expected utility theory, the goal of human action is to seek pleasure and avoid pain. According to this theory, when people make decisions, they will seek to maximize pleasure (referred to as positive utility) and to minimize pain (referred to as negative utility). In doing so, however, we calculate two things. One is subjective utility, which is a calculation based on the individual's judged weightings of utility (value), rather than on objective criteria. The second is subjective probability, which is a calculation based on the individual's estimates of likelihood, rather than on objective statistical computations. The difference between this model and the former one is that the ratings and weights are subjective, whereas in the former model they are supposedly objective.

Answer to Question 2

Among the early models of decision making crafted in the 20th century was that of economic man and woman. This model assumed three things:
1 . Decision makers are fully informed regarding all possible options for their decisions and of all possible outcomes of their decision options.
2 . They are infinitely sensitive to the subtle distinctions among decision options.
3 . They are fully rational in regard to their choice of options.



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