How People Make Economic Decisions

Decisions are a part of everyday routines. They are essential to achieve goals in life. As individuals our wants are endless but the reality is that resources to attain them are limited by time and money. Every decision is a give and take situation where trade-offs are made. This means giving up something to achieve something else (Hubbard & O’Brien, 2010). Economists assume that individuals make decisions based on three economic ideas: people are rational, they respond to incentives, and they make optimal decisions at the margin. Under these assumptions it is believed that individuals will use all available information when making decisions and that after weighing the benefits and costs, they will choose an action that has benefits outweighing the costs of the alternative. All actions and decisions are motivated by various factors. Individual goals and backgrounds motivate the decisions of an individual. As mentioned earlier, decisions involve trade-offs. Most decisions in life involve doing a little more or a little less. Unconsciously, the most optimal decisions are made by people up to a point where the benefits equal the costs (Hubbard & O’Brien, 2010).

With these principals covered, a personal example can be given to explain making decisions. Ever since that economy took a downfall, my life has been a mess of budget and schedule adjustments. Having a full-time job and going to school meant not going out as much and cutting back on spending. The situation came up where I had the option of going out, which meant spending money, or staying home and saving it for something else, like gas for my truck or money for lunch the next week. The options were as follows:

- Go out and spend money having the satisfaction of a fun night out with friends I haven’t seen in a while

- Stay home, not see my friends and have fun with them, but having money for gas to go to work and food for lunch

All options considered I decided to go out! Although my money was spent, I had...