Economic Growth and Change in a Material World
3. Economic agents, actions and wealth 3.1 ON DECISIONS IN ECONOMICS Our perspective can be summarized brieﬂy. Decisions (in economic affairs) are tantamount to selections from a limited set of possibilities for immediate action. The contemplated action may or may not have long-term implications. The set of possibilities is constrained by the external environment, such as the legal framework, and by the assets of the agent. These include ﬁnancial (i.e. more or less liquid) assets, physical assets and intangibles such as knowledge, know-how, reputation, and so on. The initial state of the agent comprises all of these conditions and assets. The criteria for selection are expected outcomes of the action. Most important, we emphasize that for most economic agents, at most times, the scope for selection is very limited. Rather than a continuum of well-understood choices, the agent in reality is normally faced with a much simpler decision, generally based on very incomplete knowledge. Sometimes it is a simple yes/no, for example, to buy an item at the price offered, or to sell an item at the price offered. Bargaining is sometimes possible, but it usually amounts to several offers and counter-offers, each of which requires a yes or no decision, still based on limited knowledge. A given offer may or may not be the last; other offers may or may not occur. Firms must decide whether to bid on tenders, and if so how much. Factory owners or managers must decide whether to produce for a given market,...
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