micro lecture 1 rational choice theory

Choice under Certainty: Review Rational Choice Approach: ◮ Preferences can be represented by real-valued utility functions; ◮ Decision making becomes optimization problem: maximize utility, subject to constraints. Advantages: ◮ Compact theory and predictions from a relatively sparse, tractable model. ◮ Optimization is a well-developed field in mathematics. ◮ Approach is strikingly general: ◮ Traditional economic matters like consumption and savings, ◮ business decisions (investment, hiring, entry, exit,. . . ) ◮ and more (education choice, marriage, child-bearing, migration, crime

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