When are we rational and irrational consumers? How does utility play into our behavior?
Answer:
As individuals, each person is always rational. He/she does consume what satisfy him/her the most given his/her budget constraint and ability to borrow and the need to repay. While each person is rational, rationality does not imply the same or similar decisions by different individuals. A rational choice for one need not be a rational choice for another. Thefrefore, when others behave diffrerentlty than what I do or I expect others to do normally, I say other consumers act irrationally. Like when stock prices go on rising , people buy more and more stocks and make shares more costlier to buy.Utility is what explains the differential behavior of different persons. Each person wants to maximise his/her utility from the choices, decisions and actions one makes/takes. It is surprising that people say I did not try to maximise my utility. Utility maximisation can come to some people through spending on charity, sacrifices for loved ones and the poor, or inviting people on religious occasions or on the Anniversary of Man's first landing on the Moon or the death anniversary of Karl Marx and so on. Everything has a rationale from the point of view of the person who does it (unless he is drunk or lost memory or become blind by anger or such other emotions including greed): that rationale is increasing satisfaction or what economists call utility.
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