Economic Analysis of Decisions

Economists recognize limits on human cognition (reasoning and perception). Yet they assume rationality.

In analyzing social systems rigorously, "equations" (formal principles and specifications) are needed
To allow for mistakes and other deviations, we include a random component in behavior
But when asked people will say
- I have goals and I know them
- I know my resources, strengths and weaknesses
- Using my resources I do my best to accomplish my goals to the greatest extent possible.
When goals are formalized as a consistent preference ordering, it is proved that "choosing a plan which is at least as good as any other achievable plan" is equivalent to "maximizing a utility function" (for the right utility function. Thus the usual economic tools of supply and demand, etc., are justified by goal-oriented decision-making.