Perfect Information and Irrational

Behavior
What is assumed in perfect competition?
 Answer
• Buyers and sellers have complete information
about market.
• Complete information means info about price,
demand and supply.
How does perfect information help economic
agents?
 Answer
• By helping to take optimum decisions.
What are principles of Economic Models?
 Answer
• Consumer shows optimizing behavior( Tries to
maximize utility)
• Producer makes optimized decision( May be
Profit Maximization)
What does irrational behavior refers to?
 Answer
• Individual or Institutions deviating from
principles of economic model (Optimizing
behavior) is called irrational behavior.
When is a consumer said to show irrational
behavior?
 Answer
• When consumer spends his/her budget
haphazardly.
Which branch of economics studies “why
people behave irrationally”?
 Answer
• Behavioral Economics
What is Behavioral economics?
 Answer
• It studies the relation between psychology and
economics for economic decision making.
Which economics behavioral economics
often relates with?
 Answer
• Normative Economics
What is the intention of Behavioral
economics?
 Answer
(i) Why people take irrational decision?
(ii) Why people deviate from principles of
economic model?
Link perfect information, irrational behavior
and behavioral economics.
 Answer
• When economic agent have perfect information,
optimizing goal is achieved.
• The deviation from perfect information is called
irrational behavior.
• Due to incomplete information, people
sometimes behave irrationally.
• The study of economic agents showing irrational
behavior is called behavioral economics