Rationality.
Rules of Thumb.
Many economic decisions are so complex that thinking through all the possible consequences for every alternative is extremely difficult.
In such circumstances, many people rely on simple rules of thumb that have served them cr others well in the past.
Example how much to save.
Some economists think that irrational behavior in the laboratory sometimes occurs because experiments trick subjects into applying good rules of thumb to the wrong situations.
Time.Maintaining self-control.
A person is dynamically consistent if her preferences over the alternatives available at some future date do not change as date approaches.
When this condition does not hold, preferences are dynamically inconsistent.
Present bias. a form of dynamic inconsistency involving a bias toward immediate gratification. Example people who suffer from present blas may have difficulty exercising the self-control required to save money.
Time.Maintaining Self-Control
Solution = precommitment. a choice that removes future options. Example a student who wants to avoid driving while intoxicated hands his car keys to a friend before joining a party