Professor Capitalist

Bounded Rationality is an idea that humans are somewhat rational with several important limitations. This is a challenge to a framework known as the rational choice theory that assumes that people are generally rational. Rational choice theory is widely used in social sciences and underpins a large number of theories in economics. To have a better understanding of bounded rationality, imagine that you are an investor who invests in stock market. You may only have a few minutes to consider a stock trade. Here faced a time constraint. Now, a stock trade may involve hundreds of variables and a high level of uncertainty such that it is not possible for an individual to make an optimal decision in a few minutes. Often, the context and the framing of the information influence an individual’s judgement and decision making. This phenomenon is called Cognitive bias. People usually tend to over rely on the first piece of information they receive and then use it as a baseline for comparison. This...

Life is like a giant store. Every day you wake up and you confront with thousands of goods you might buy. People are always trying to make themselves as well-off as possible. Some of those goods on offer at the store may help you to make you better off. So how do you decide what to buy from the store of life? In order to decide what to buy from the store, you first have to consider your preferences for various types of quantities and goods. Normally, a responsible individual will also have to consider his budget when deciding what bundles of goods to buy but let’s start by imagining that there are no constraints and you can buy whatever you want. But even now, you will have to think about your preferences. And because you are not just a millionaire, you are a rational millionaire, these preferences are going to follow some rules.  First , when you are considering two bundles of goods you either prefer one or the other or you are indifferent between the two. Second , your preferenc...