Kahneman's Ability To Behave In A Rational Way

ans are not rational by definition but we do have the ability to behave and think rational in our own way. As I previously stated Akerlof and Shiller mentioned that humans do not behave in a rational way but I feel in ways we do depending on the person. In order for someone to be rational with their money and buying, they need to know all aspects of their purchase. A rational person would take in all consequences of buying a certain good or product. They make the rational choice of whether they need it or not, is it financially suitable for them to afford and what impact will it have on them if they bought it. Rational thinking goes through a process ‘inputs + process = output’ . When writing this essay, this is the process that I am going
They have no fear that the product may be of no use, or that it will drain their bank account. Kahneman has given some evidence towards the existence of limits to rationality. He has stated that someone’s utility may depend on the well-being of others, he explains that addictive behavior can limit a persons ability to think in a rational way . Being addicted to something can make you have poor choices, or think ‘irrationally’. He uses drugs as an example and says that the amount smoked and the decision to quit respond systematically to the elimination of advertising, to health warnings, and to rules governing smoking in public places. Systematic mistakes is also an example he uses, saying that we are poor at calculating things especially probabilities, and our intuitive answers are systematically biased. We are overly influence by other peoples decisions, meaning that we could sit in a room filling up with smoke as long as there was others in the room doing the same . Many things influence us to either think rational or irrational in the economy such as power , the seller and advertising which is the most obvious effort to influence a
According to Keynes, Animal Spirits are a particular sort of confidence, "naive optimism". He meant this in the sense that, for entrepreneurs in particular, "The thought of ultimate loss which often overtakes pioneers, as experience undoubtedly tells us and them, is put aside as a healthy man puts aside the expectation of death". Where these animal spirits come from is unknown. Attempts by politicians and others to talk up confidence by making optimistic noises about economic prospects have rarely done much good . Animal Spirits can be spread out into five key categories; confidence and its multipliers, fairness, corruption and bad faith, money illusion, and stories. Confidence is based on our decisions, and we make our decisions because we feel that they are the right choice to make. In the capital market, confidence has been reducing. Everyone feels that they should be treated fairly in the economy and if treated unfairly this has a negative impact. In any situation, a business man is not dealing with you in good faith, they want you to buy their product therefore may not be giving you the best or truthful information. Even if the businessman is not lying to you directly, they are hiding something that you should know. This also generates anger and negative issues in the market. Money illusion is where people have trouble protecting themselves against