Thursday, November 19, 2009

How People Really Make Decisions

Most people seem to live their lives according to the the following rule set:

1) Do whatever the happiest-looking people around you are doing.  If that makes you happy, keep doing it.  If not, proceed to Step 2.
2) Do something else at random. If that makes you happy, keep doing it.  If not, return to Step 1.

Note that this process will usually end up producing a situation where it appears as if everyone has carefully examined all of the possible options and chosen the one that makes them happiest.  So even though the 'utility-maximizer' model of economic agents has nothing to do with how people think, it is a good first approximation of the world in most situations.

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