Rational Model Theory, the Law of Diminishing Marginal Utility, Cost-Benefit Theory and Opportunity Cost
In the world of economics, economists try their best to research and apply the models and the theories in a real-life situation. There are many models and methods that economists develop and build to make the model or theory more accurate so they can apply in the real-life case and see how those models or theories work and what is the problem or the error in the model so economists can work on it and improve to become better. There are so many underlying assumptions that economists used to build their models, as in this article, such as rational model theory, the law of diminishing marginal utility, cost-benefit theory, and opportunity cost.
Basic Assumptions:
In the article of economists discover miracle hangover cure: drink less, there are many assumptions that economists have been using, such as:
The rational model is used to help economists to establish the model which is related to the choice or decision-making that people need to decide on particular situations. Rational choice theories possess that individuals should expect the results of the different series of movements and measures, which will be best for them. Rational theory selects the opportunity that is given to an individual with the most excellent satisfaction. In the case of Christ, he decided to go out on a Friday night to have a drink, and it makes Christ feels enjoyable. It is the most excellent satisfaction for him.
In this article also mention the assumption of the law of diminishing marginal utility, it likely to decline with more significant usage. In the case of Chris, he consumes his first drink he really enjoys it and when he finished the first drink he orders the second which he even enjoys more by the third drink, and the diminishing marginal utility appeared from it definitely declines when the barman asks if Christ would like to have another drink, but he rejected to have one more drink.
Moreover, in the article, it also mentions the cost-benefit theory. The cost-benefit theory is one of the models that help economists to measure the cost of one action and the effect or the benefit of it. From the economists’ perspective, it shows that economists involve sensation and satisfaction in the cost-benefit measure. In the case of Christ, he drinks for several drinks, and after his second drink, he starts to weigh and think about whether he should drink one more or stop and what is the consequence of having one more drink is he will be a hangover for tomorrow. The costs of the action would override the benefits and effects.
All of these assumptions are important to economists developing theories and building models because it is an idea for economists to have a better assumption in order to develop models or to evaluate models and compare to real-life situations. Some of these models and theories in this article show the importance for economists and people to weighting and to determine how the models work like the rational model it is the model when people choose the best alternative one for themselves, and it is true because we as a human they always want something that is the best for them. Also, the cost-benefit theory it is the model that helps people to weigh what is the cost of doing something and what is effect of it. In the world of economics, if it does not have a model or theory, it is difficult not only for economists but for an individual to evaluate the models and compare all models or theories to real-life situations. Also, different models or theories apply to different cases or situations. Some models from the economist's perspective it does fit for an individual, but some it does not fit.
As human being always has an ambition and always want something that is the best for them but in a limited capability, so when trying to please one thing, it means that they might not satisfy other things. An opportunity cost is an interpretation established on the highest value of the dropped opportunities. Opportunity cost reviews the influence of personal and social. Individuals who acknowledge opportunity costs are possible to achieve attractive life effects than those who disregard it. People who consider opportunity costs are more conscious of their costs more than those who do not. In the case of Christ, the opportunity cost of going home to play PlayStation is he will be not able to have a third drink and his stamp collection which he has wanted to do it for a long time ago.
However, there are also some arguments about the article according to Jessica, the journalist's hangovers are only possible because ordinary humans often do not fit the model of rational individuals prescribed by economists' the reason that she gives this opinion is that Jessica believes that some people does not fit in some models or theories such as rational models about this model when people enjoy themselves they do not tend to think about what is the consequences of it whether when you drink one or two drink what is the consequence of that such as you will get drunk and hangover for the next day. As an ordinary person, it is strange to think for all the following consequences that can happen, however, for economists, their perspective is different from ordinary people because they tend to think about what has happened when they drink a lot. That is the reason why Jessica said that hangover is only possible because ordinary humans do not fit in the model. Besides, for the cost-benefit theory, it also does not fit for ordinary humans because when people do something, they know what the cost is but they do not tend to think about the effect or the benefit of it later. As ordinary humans, they always want something that is convenient for them, and they do not overthink about it because they think that it is a simple thing, but for economists, it is different.
Moreover, one more reason that Jessica thinks that ordinary humans do not fit in the models is related to opportunity cost models. An opportunity cost is an interpretation established on the highest value of the dropped opportunities. As ordinary humans, they do not tend to think if they do something the opportunity cost of them is something else. They tend to consider what has happened in the present rather than what has happened in the future if they do this one and ignore doing something else.
Conclusion
In conclusion, from the economists’ perspective, they do weigh and calculate their choice and decision, while ordinary people do not. In this article, it shows that some models only exist in theory, but it does not work in practice. It can be true because the reasons from the above explanation show that some models do not fit in practice. However, although some models do not work in practice, it does not mean that economists' perspective to build that model is wrong because economists can improve the model and correct it in order to fit in ordinary models, so it is a benchmark to help economists to have a better idea.
