Theory and analytical predictions

In economics, both micro and macro, theory and analytical predictions are primarily based on the assumption
that individuals and groups will behave in a rational manner. Economics assumes that decision making will be
based on achieving the best possible level of benefit, known in economics as utility. There is considerable
discussion or debate on whether people do act rationally (Links to an external site.), to a short synopsis and audio clip on this debate.
For your assignment, provide your opinion on the debate. Do you believe individuals make decisions in a
rational manner? Do you always behave in a rational manner? Is the rational behavior assumption more
applicable to microeconomics or macroeconomics? Or neither? Explain your opinion.
In addition, provide your thoughts on the following. A father is trying to decide between spending $100 on a gift
for his daughter or donate the $100 to his favorite (legitimate) charitable organization. Which decision is the
rational decision? Explain your reasoning.

Sample Solution