Utility maximization problemUtility maximization was first developed by utilitarian philosophers Jeremy Bentham and John Stuart Mill. In microeconomics, the utility maximization problem is the problem consumers face: "How should I spend my money in order to maximize my utility?" It is a type of optimal decision problem. It consists of choosing how much of each available good or service to consume, taking into account a constraint on total spending (income), the prices of the goods and their preferences.
Prospect theoryProspect theory is a theory of behavioral economics and behavioral finance that was developed by Daniel Kahneman and Amos Tversky in 1979. The theory was cited in the decision to award Kahneman the 2002 Nobel Memorial Prize in Economics. Based on results from controlled studies, it describes how individuals assess their loss and gain perspectives in an asymmetric manner (see loss aversion). For example, for some individuals, the pain from losing 1,000couldonlybecompensatedbythepleasureofearning2,000. Transitive relationIn mathematics, a relation R on a set X is transitive if, for all elements a, b, c in X, whenever R relates a to b and b to c, then R also relates a to c. Each partial order as well as each equivalence relation needs to be transitive. A homogeneous relation R on the set X is a transitive relation if, for all a, b, c ∈ X, if a R b and b R c, then a R c. Or in terms of first-order logic: where a R b is the infix notation for (a, b) ∈ R. As a non-mathematical example, the relation "is an ancestor of" is transitive.
InstitutionInstitutions (singular: institution) are humanly devised structures of rules and norms that shape and constrain individual behavior. All definitions of institutions generally entail that there is a level of persistence and continuity. Laws, rules, social conventions and norms are all examples of institutions. Institutions vary in their level of formality and informality. Institutions are a principal object of study in social sciences such as political science, anthropology, economics, and sociology (the latter described by Émile Durkheim as the "science of institutions, their genesis and their functioning").
Chicago school of economicsThe Chicago school of economics is a neoclassical school of economic thought associated with the work of the faculty at the University of Chicago, some of whom have constructed and popularized its principles. Milton Friedman and George Stigler are considered the leading scholars of the Chicago school. Chicago macroeconomic theory rejected Keynesianism in favor of monetarism until the mid-1970s, when it turned to new classical macroeconomics heavily based on the concept of rational expectations.
ReasonReason is the capacity of applying logic consciously by drawing conclusions from new or existing information, with the aim of seeking the truth. It is closely associated with such characteristically human activities as philosophy, science, language, mathematics, and art, and is normally considered to be a distinguishing ability possessed by humans. Reason is sometimes referred to as rationality. Reasoning is associated with the acts of thinking and cognition, and involves the use of one's intellect.
TheoryA theory is a rational type of abstract thinking about a phenomenon, or the results of such thinking. The process of contemplative and rational thinking is often associated with such processes as observational study or research. Theories may be scientific, belong to a non-scientific discipline, or no discipline at all. Depending on the context, a theory's assertions might, for example, include generalized explanations of how nature works. The word has its roots in ancient Greek, but in modern use it has taken on several related meanings.
UtilityAs a topic of economics, utility is used to model worth or value. Its usage has evolved significantly over time. The term was introduced initially as a measure of pleasure or happiness as part of the theory of utilitarianism by moral philosophers such as Jeremy Bentham and John Stuart Mill. The term has been adapted and reapplied within neoclassical economics, which dominates modern economic theory, as a utility function that represents a consumer's ordinal preferences over a choice set, but is not necessarily comparable across consumers or possessing a cardinal interpretation.
Public administrationPublic Administration or Public Policy and Administration (an academic discipline) is the implementation of public policy, administration of government establishment (public governance), management of non-profit establishment (nonprofit governance), and also a subfield of political science taught in public policy schools that studies this implementation and prepares people, especially civil servants in administrative positions for working in the public sector, voluntary sector, some industries in the privat
MarginalismMarginalism is a theory of economics that attempts to explain the discrepancy in the value of goods and services by reference to their secondary, or marginal, utility. It states that the reason why the price of diamonds is higher than that of water, for example, owes to the greater additional satisfaction of the diamonds over the water. Thus, while the water has greater total utility, the diamond has greater marginal utility.
RationalismIn philosophy, rationalism is the epistemological view that "regards reason as the chief source and test of knowledge" or "any view appealing to reason as a source of knowledge or justification", often in contrast to other possible sources of knowledge such as faith, tradition, or sensory experience. More formally, rationalism is defined as a methodology or a theory "in which the criterion of truth is not sensory but intellectual and deductive".
ChoiceA choice is the range of different things from which a being can choose. The arrival at a choice may incorporate motivators and models. For example, a traveler might choose a route for a journey based on the preference of arriving at a given destination at a specified time. The preferred (and therefore chosen) route can then account for information such as the length of each of the possible routes, the amount of fuel in the vehicle, traffic conditions, etc.
