The questions below related to Managerial Economics Essay

The questions below related to Managerial Economics - Essay Example Through anchoring people are often overly influenced by outside suggestion. People can be influenced even when they know that the suggestion is not being made by someone who is better informed. (Kahneman & Tversky, 1999). Besides Expected Utility theory also do not seem to be in conformity with the rationality. The famous experiments conducted by Tversky and Kahneman suggested a revolutionary shift from the expected utility theory and clearly suggested than we humans are not essentially rational. These experiments were: We don’t always seem to be behaving according to rationality. The deviation from the rationality seems to be due to Satisficing and heuristics effects. The use of heuristics as a cognitive framework can lead us to errors and similarly satificing seems to be denying the rationality also. The phenomenon of self deception under which a person seems to be acting against what is expected. (Kakures, 1996) Thus the notion that whether a consumer is rational or not is little bit arbitrary in nature as consumers show both tendencies of rationality as well irrationality. Rationally in the sense that consumers considering their limited income, choices, risk appetite, take decisions so that utility is maximized however on the same hand consumers tend to involve themselves into impulse buying and all related activities which potentially point towards the irrational behavior of consumers. Rational thinking can define behavior like impulse buying etc due to the fact that consumers perceive value. There is also a phenomenon called framing effect which basically outlines that we decide differently depending on how we frame the decision based on the losses and gains. (Wang & Fischbeck, 2004). Thus if consumers perceive any gain or loss from making the purchase whether that purchase is rationally made or not is based on how she frames her decision