Individual rational decision-making is based on making well-informed choices that would result in optimum utility using solely the presented facts rather than the emotional components. However, the rational choice does not necessarily lead to gaining monetary benefit but might focus on the satisfaction received in a short or long run. Rationality constitutes one of the principles of decision-making. There are several other principles that are interconnected with rational thinking, which individuals apply when face necessity to make economic decisions, and they are to be discussed in this paper.
The facts presented to the clients of Big Y supermarket serve as the foundation for the customer’s decision about signing up for the reward card. Rational individuals base their decisions on the evaluation of marginal benefits and costs involved. For example, in the case of Big Y supermarket reward program, the marginal benefit to be accrued in the future is the discount on gasoline. On the other hand, the marginal cost for the choice is the difference between the budgeted expense of $47 and the minimum requirement for qualification to the reward program, which is $50. The marginal cost, in this case, is $3, which the customer has to incur. Consequently, a rational customer will make a decision when the marginal benefit of the action exceeds the marginal cost. In this scenario, however, the marginal benefit is not quantified, but it is the presumptions of the customer that the discount will have a higher marginal benefit than the marginal cost of $3.
The trade-off appears in the scenario when the customer spends extra $3 for a future discount on gasoline. From the economic point of view, every decision made is a trade-off of one course of action against another. Individuals must consider the opportunity cost of making a particular decision. In this scenario, the opportunity cost is spending extra $3 on the second best alternative. Before a decision is made, the opportunity cost must be evaluated. There several ways the extra expenditure could have been utilized in the case under consideration. The benefits to be accrued from making the decision to sign up for Big Y supermarket card should be greater than those of the second best decision that the customer could have taken. If the discount on gasoline to be given is significant enough, the customer’s decision is rational.
The incentive present in the scenario heavily affects the customer’s decision. Since rational decision requires comparison of marginal costs and benefits, the behavior and preferences regarding the choice may change with shifts in their values. Providing incentives could influence this change. For example, in the scenario under analysis, if there was no discount accrued for having the Big Y supermarket reward card, a rational customer would have rejected the offer and saved $3, the extra expense for signing up for the reward program. Introducing an incentive to scenario changes the decision-making process and makes the customer’s choice rational. The incentive of the discount on gasoline poses a significant benefit as compared to the cost and, thus, influences the decision about signing up for the reward card.
In conclusion, rationally thinking individuals base their decisions on the evaluation of the marginal costs and benefits. An alternative is chosen when its marginal benefits outweigh the marginal costs. There several other principles that are inter-connected with rational decision-making and influence the overall thinking direction. These principles, namely the presence of a trade-off and incentives, have the direct or indirect impact on individuals when they are making decisions. In the scenario under discussion, the decision to sign up for the reward card is rational as the marginal benefits outweigh the incurred marginal cost of $3.
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