Discussion Question Response


Economic behavior is more complex than assumed by conventional economic theory. Political economy explains the functioning of government. Behavioral economics ties psychology into human behavior.

Economists assume that individuals make rational decisions. However real people are more complex.

Based on what you have learned in your assigned reading, answer the following questions in your initial post:

What are the human behaviors economists should observe when creating economic models? Example: people tend to find solutions that are good enough, but not the best solutions.

In your responses, comment on at least two of your peers’ posts and share example of how non-rational human behavior can change an economic outcome.


Aleisha Pohlenz– Human behaviors have a large impact on decisions that are made even in business situations, but even more so when dealing with personal economic decisions. As the text states people are irrational (much of the time) – we make decisions based on emotions, passed experiences, strong beliefs/values and even “instinct”, sometimes we even have a hard time accepting an outcome and learning from it. I think its also extremely important that many people (although we may not always see it or admit it) have a sense of entitlement – feeling entitled can impact decisions and responses to various situations.

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Stacy Portmann – One of the human behaviors that stand out in my mind is the story of the prisoner’s dilemma. Self-interest and the ego motivate behavior and that self interest can result in unpredicted negative outcomes. From this week’s readings, we learned that real people are not always rational, yet economic models are based on rational predictions. Economists can create models, however how can an economic model account for human irrational behavior? Human thought processes like being over confident, placing too much weight on small number of vivid observations and reluctance to change their minds are human habits that are difficult to predict. (Manikw, 2021) Using myself as an example, sometimes I make an immediate on the spot financial decision, other times, I might take two years to make up my mind. This explains why I still don’t have curtains on some of my windows! Additionally, preference ordering and transitivity play a part in economic outcomes, as shown in the example in the reading on voting, where the median voter returns the outcome. Humans break agreements. Humans cheat. Humans are generous. Real people are just imperfect when it comes to decision making and reasoning. Economists need to account for human nature and behaviors when creating economic models.

Response –