DECISION THEORY

What is the core claim of methodological individualism?

The starting point of any analysis of social interactions is always the individual — not groups or institutions.

How does methodological individualism explain what a firm is?

A firm is a network of contractual relationships between the individuals involved — employees, owners, customers (stakeholders).

How is market analysis approached through methodological individualism?

By identifying and studying the behavior of individual market participants — suppliers and consumers.

How does methodological individualism apply to the legal system?

The legal system is analysed by examining how laws affect and shape individuals' behavior and choices.

What are the three characteristics of Homo Economicus?

Stable needs (preferences), rational actions, and self-interest.

What does it mean that the individual has "stable needs"?

Their preferences do not change randomly — their wants remain consistent over time.

What does "rational actions" mean in the Homo Economicus model?

The individual makes logical decisions aimed at best satisfying their needs and preferences.

What is scarcity in the context of Homo Economicus?

The individual cannot satisfy all needs at once because resources are limited, forcing them to make choices.

What are "alternatives" in Decision Theory?

The measures or actions available to an individual to satisfy their needs — limited by real-world restrictions

Why are the individual's alternatives limited?

Because restrictions exist in the real world that prevent every possible action from being available.