In economics, what is a rational person?

beeelo85

What i'm really wondering is whether a rational decision maker is someone who always makes the right decision based on the cost-benefit principle etc. or are they someone who tries to fulfill their goals but still makes common human errors like failing to ignore sunk costs?

for example, the average person on visiting an All You Can Eat buffet will probably eat to excess so that they will get their 'money's worth' eventhough this is illogical as the cost paid up front was a sunk cost so would a rational person be the person who goes to the buffet and makes this error or would they be the person who realises this and eats according to its marginal benefit?

In other words would a 'rational person' be defined as someone who is open to human error and the common pitfalls of economics or would they be someone who is assumed to have a good knowledge of economics and doesn't make unintentionally bad decisions?
thanks

Mr. G

Here you go

Rationality, interpreted as "wanting more rather than less of a good". It attaches "wanting more" to instrumental rationality, which involves seeking the most cost-effective means to achieve a specific goal without reflecting on the worthiness of that goal

Mr. G

http://en.wikipedia.org/wiki/Rational_choice_theory

beeelo85

Thanks for your help,
also would you be able to explain to me why the equilibrium quantity of a supply and demand curve graph doesn't correspond to the quantity at which the market price meets the marginal cost curve?
if the market price equals the equilibrium price then why doesn't the equilibrium quantity equal the profit maximizing quantity?
thanks very much for your help

noodler

beeelo85 wrote: »

Thanks for your help,
also would you be able to explain to me why the equilibrium quantity of a supply and demand curve graph doesn't correspond to the quantity at which the market price meets the marginal cost curve?
if the market price equals the equilibrium price then why doesn't the equilibrium quantity equal the profit maximizing quantity?
thanks very much for your help

I thought it does? Or am I misreading you?

Do you want to post the question word for word?

I mean when P=MC then we have the efficient equilibrium

Voltex

the market price equals the equilibrium price then why doesn't the equilibrium
quantity equal the profit maximizing quantity?
thanks very much for your
help

Its been a while since I did undergrad economics...but are these two different things? Profit maximising is the point where the marginal cost is at it lowest? Whereas equilibrium is where supply equals demand at a price?

Mr. G

Voltex wrote: »

Its been a while since I did undergrad economics...but are these two different things? Profit maximising is the point where the marginal cost is at it lowest? Whereas equilibrium is where supply equals demand at a price?

A firm is said to be efficient if it produces at the lowest point of the AC curve.

A firm is maximising profits where mc=mr

Voltex

I know Im going into a slightly different field here...but isn't the rational economic man the one who will seek out the maximum benefit for the least cost? I'm thinking back to classical/ scientific mgmt. theories where reward or pay was considered the primary motivator of the worker.