Are we always rational?
Seeing as the economy is made up of billions of human beings making choices every day, economists spend a lot of time trying to work out how we make decisions. Some economists use what’s called rational choice theory: making informed decisions based on the information we have and what will satisfy us the most.
Are we limited by what we know?
A slightly less strict version of rational choice theory is bounded rationality, the idea that we make decisions that are rational, but within the limits of the information available to us, as well as our mental capabilities (or cognition).
How do spontaneous decisions come about?
But what if even bounded rationality is too much of an ask? Sometimes, we’re plain spontaneous in our decisions – maybe because something is urgent, or maybe we’re too lazy to think through what we’re doing, or it’s just more fun that way. Our brains create shortcuts called heuristics to help us make decisions faster, but they don’t always go too well.