Economic Theories a General Equilibrium theory a Mechanism Design theory Decision theory
11 Economic Theories ◼ General Equilibrium theory ◼ Mechanism Design theory ◼ Decision theory
General Equilibrium theory a relatively large number of individual consumers and producers, how the combined individual efforts help define the environment trade and production(markets) macroeconomic analysIs monetary or tax policy stock markets nterest and exchange rates trade policy and the role of nternational trade agreements 12
12 General Equilibrium theory ◼ a relatively large number of individual consumers and producers, how the combined individual efforts help define the environment ◼ trade and production (markets) ◼ macroeconomic analysis – monetary or tax policy – stock markets – interest and exchange rates – trade policy and the role of international trade agreements
Mechanism Design theory the consequences of different types of rules the design of compensation and wage agreements that effectively spread risk while maintaining incentives, and the design of actions to maximize revenue or achieve other goals 13
13 Mechanism Design theory ◼ the consequences of different types of rules ◼ the design of compensation and wage agreements that effectively spread risk while maintaining incentives, and the design of actions to maximize revenue, or achieve other goals
D eciSion theory theory of one person behavior, or a single player against a big environment preferences among alternatives, maximization of benefits and minimization of costs X how best to acquire information before making a decision 14
14 Decision theory ◼ theory of one person behavior, or a single player against a big environment. ◼ preferences among alternatives, maximization of benefits and minimization of costs ◼ **how best to acquire information before making a decision
Game Theory Psychologists the theory of social situations focus on how groups of people interact study of behavior in situations of interdependence Key characteristic. Interdependence 15
15 Game Theory Psychologists: ◼ the theory of social situations ◼ focus on how groups of people interact ◼ study of behavior in situations of interdependence Key characteristic: Interdependence