Monday, March 30, 2009

rational agent

To the economist utility is a stand-in for usefulness. In fact, it is often interpreted as a subjective measure with reference to the consumer. In this sense it cannot be used to distinguish between wants and needs. The distinction is left up to the consumer. And, according to rational agent theory humans (Homo economicus) act with perfect rationality in making choices based on their subjective utility assignments for various options. There are two basic flaws in this approach to building economic theories and models. First, humans are by no means rational, in the pure sense, but are strongly influenced by emotional factors, often subconsciously, that bias their decisions toward that which 'feels' good and away from that which 'feels' bad. Second, the formation of emotional linkage to things out in the world is strongly influenced by perceptions of linkage to deep biological needs even when there is no real connection. This is the job of advertising — make that premium object have sex appeal always works!

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