Choice and Preference

Overview

Choice and preference is the framework that economists use to model the choices of agents in the economy. The starting point of choice is to assume that agents face an array of mutually exclusive options as to actions that they take and the products/services they buy or consume. The objective of choice theory is to create a framework for understanding how they go about choosing one option over the others. In order to be precise, the framework designed by economists to model choice and preference is necessarily formal and mathematical.

While the standard models of rational choice provide a formal framework for analyzing the choices that agents make in the economy, it has been shown that individuals do not always conform to the standards of rational choice. Rather, they make decisions that only approximate rationality.

Theories of Choice

• Rational Choice: is the standard model for economic choice, which assumes that individuals are rational and make the most rational choice given the information that they have.
• Behavioural Choice: focuses on trying to understand how individuals actually make choices. Is often framed by the deviations from rationality that is often observed.