Fiction of the economic man and the conomic principle

Fiction of the economic man...

... and the economic principle

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Homo economicus (The economic man) makes choices which ...

• are perfectly rational

• are in his self-interest

• are based on perfect knowledge

• offer maximum benefit

• consider the wants of others

Human behavior in reality...

• is influenced by friends, family, peer pressure, habits

• fashion, trends, education, preferences

• ads, blogs, convenience

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Individual people ...

• do not have perfect knowledge

• make rational choice

• have preferences

• are not always self-interested

• always maximize their benefit

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Economic Principle means that individuals try to

• maximize their benefit at a given cost

• none of these

• maximize their benefit while minimizing their costs

• minimize their cost to reach a given benefit

Irrational consumer behavior

• Consumer's demand rises when the price of a good is increased -> Veblen effect

• More people would like to have the good, the more people buy it -> Bandwaggon effect

• The demand for the good decreases, as more people buy this good -> snob effect

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Which are examples for the bandwagon effect?

• fashionable items

• "like" button

• shoes young people wear

• food trends

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Which goods show the Veblen effect?

• groceries

• dinner in a hip restaurant

• designer clothes

• Luxury cars