Explaining Irrational Choices in Mainstream Economics

Name
Instructor
Course
Date
Economics
Mainstream economics focuses on rationality which states that people are able to process all the information they have available to make decisions and identify levels of satisfaction that is reasonable. However, behavioral economists have challenged this concept as there are various instances where individuals make irrational economic decisions (Schneider and Coulter 186). The anomalies in behavior are most common when people continue to pay for something when they do not get extra satisfaction and value for money. Furthermore, economists tend to look at aggregates even when seeking to determine what influences individual choices. Pure rationality and individual interest do not necessarily influence individual choices and various explanations have been provided to explain irrational choices.
It is increasingly clear that the market is not always good locator of resources in health and education, and driven by economic actors who tend to collude. This has resulted in questions on whether there should there be a change in market regulation. The authorities especially in the health industry must open up options so that people can access drugs, and within that framework the strengthening the pharmacies while also considering ways to improve efficiency and access to drugs. There are incentives for pharmacies and the economic actors in the pharmaceutical industry to collude and Americans tend to pay high prices for drugs compared to other countries.
The assumption of free flow of information is one of the main concepts that helps to explain different economics and finance theories, but ignores that such information is not always readily available. This is mostly not the case for developing nations, and even in developed countries, growth in the gig and sharing economy may present challenges in capturing all data on economic activities. The idea that the economic agents use complete and relevant information supposes that such information is always available to the market agents. There are various factors at play, which influence what the economic agents and actors do with the information, and people come to different conclusions based on different factors such as preferences the economy and aspiration of status.
In the new paradigm there are different factors that influence the behavior of consumers jointly, and like behavioral economists there is integration of emotions and behavior in decision making and not merely rational decision making processes. When a person makes a consumption decision, this decision will have both affective and rational factors as well as the conscious and subconscious factors (Schneider and Coulter 187). Previous research shows that to make decisions, economic agents incorporate both cognitive and affective processes in a balanced way to achieve it. It is also likely that deliberate and excessive rationalization affects emotional processes and the ability to make the most appropriate decisions.
Networks are important in the determination of economic behavior, while creating and fostering relationships can help to explain how emotions influence decision making. Networks of relationship affect collocation, foster or hinder mutual trust and since there are different power dynamics and this influences how choices are made. This is most common in marketing where marketers try to establish relationships and links with the targeted customers. Reason and emotion are closely linked and marketers appeal to emotion to sell. There is evidence that shows that emotions distort risk perception, memory and condition rationalization by creating distorted expectations about what can happen.
The technological revolution had generated increasing flows of information, but the mind also the blocks some of the information. The new paradigm highlights that people do not always act rationally even when there is access to information since our perceptions are selective, and so too is memory highly selective and that cannot process all the information. Availing access to relevant information in ways that the economic agents can understand would provide insights on how the information influences decision and help to investigate why people act differently under similar circumstances and goals. People avoid information while the preexisting interests and habits influence what information they choose, and ensuring there is greater transparency in access to information will enhance allocation of resources.
There are differences between the paradigm and mainstream economics as reflected by assumptions mostly on rationality and maximization. There is irrationality while people behave different when making decisions in cases where there is maximization with restrictions and the rationality of the individual. Furthermore, there are differences in risk profiles, which partly explain why people choose certain alternatives over others consistently access to information does not necessarily result in efficient markets and economic agents may make decisions con...