Multiple Choice
Which of the following statements is a valid economic conclusion based on positive analysis?
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0. Basic Principles of Economics
Positive and Normative Analysis
Multiple Choice
According to the concept of bounded rationality, managers make decisions ________.
A
using limited information and satisficing rather than optimizing
B
by always maximizing profits with perfect information
C
without considering any constraints or limitations
D
based solely on normative analysis
Verified step by step guidance1
Understand the concept of bounded rationality: it suggests that decision-makers, such as managers, do not have perfect information or unlimited cognitive resources to make fully optimal decisions.
Recognize that because of these limitations, managers use heuristics or rules of thumb to make decisions that are satisfactory or 'good enough' rather than perfectly optimal.
Contrast bounded rationality with the traditional economic assumption of perfect rationality, where decision-makers are assumed to maximize profits with complete information.
Identify that bounded rationality involves making decisions using limited information and aiming for satisficing outcomes, which means accepting a solution that meets acceptable criteria rather than the absolute best.
Conclude that the correct description of decision-making under bounded rationality is 'using limited information and satisficing rather than optimizing.'
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