HUT 310 Management for Engineers

Module III (Productivity and decision making): Concept of productivity and its
measurement; Competitiveness; Decision making process; decision making
under certainty, risk and uncertainty; Decision trees; Models of decision
making.
Concept of Productivity and its measurement
Productivity
Productivity is defined as an index that measures output (goods and services)
relative to the input (labor, materials, energy, etc. used to produce output).
It is the measure of how specified resources are managed to accomplish timely
objectives as stated in terms of quantity and quality.
Productivity = Output / Input
Increase in production may or may not be an indicator of increase in
productivity.
Productivity means an economic measure of output per unit of input. Output
refers to the total production in terms of units or in terms of revenues. Input
refers to all the factors of production used like capital, labour, equipment, etc.
Productivity is a good indicator of the efficiency with which a factory is
operating.
Objective of productivity measurement
– Study the performance of the system
– Compare with different systems.
– Compare actual productivity with desired productivity.
Benefits of productivity measurement
• Higher profit • Employee’s welfare • Better return • Nice relations •
Customer satisfaction • Good credit rating • Goodwill • Low labour turnover
Factors affecting productivity
Controllable Factors • Production factors (Product or system Design, Machinery
and Equipment, Production volume) • Organizational factors • Finance factors •
Technological factors • Personnel factors • Managerial factors
Uncontrollable Factors • Natural Resources • Government and Infrastructure
Measures to improve productivity
Better planning and training of employees and improve jobs and communication
and effective management through CPM/PERT methods.
Use of time and motion studies to study and improve work performance.
Better transportation and material handling system
By providing work incentives and other benefits to workers.
Workers involvement in decision making and working of organizations.
Improvement in technology of production and specialization technique.
Better and efficient utilization of resources at the disposal of the enterprises
Benefits from increased productivity
Higher productivity results in higher volume of production and hence sales at
lower cost and higher profit. It is beneficial to all as stated below:
Benefit to organization: More profit, Higher productivity ensures
stability of the concern. Higher productivity and higher volume of sales provide,
opportunity for expansion of the concern and wide spread market.
Benefits to workers: Higher productivity permits more wages, more
wages permit better standard of living of workers. Thus more productivity
means better working. Conditions for workers which also help in maintaining
better health for workers. Higher productivity yields improved moral and
greater satisfaction for workers.
Benefits to consumers; More productivity ensures better quality of
product. It also helps reduction in prices. It provides more satisfaction to
consumers
Measurement of Productivity
1. Single Factor Productivity or partial productivity
When consumption of only one resource is taken to calculate the productivity, it
is called single factor productivity or partial productivity.
Comparison of output with all the input factors (like labour, material,
machinery, etc.) taken together is called productivity index total and comparison
of output with anyone of the input factors keeping other factors constant is
called partial productivity index.
Single factor productivity = Total output / Individual input
Example:
 Labor productivity = Output ÷ Labor hours
 Capital productivity = Output ÷ Capital invested
Following types are present– Capital productivity– Labour productivity–
Material productivity
2. Multi Factor Productivity
This type utilizes more than a single factor. It is the ratio of total output to a
subset of inputs. Multi factor productivity measures reflect the joint effects of
many factors including new technologies, economics of sale, managerial skill
and changes in the organization of production
3. Total Productivity or Overall Productivity
It is the ratio of total output to the sum of all input factors.
Total productivity = Total output / Total input
Total productivity index gives the absolute measurement between the output and
the input
4. Total Factor Productivity
It is defined as the ratio of net output to the sum of associated labour and capital
(factor) inputs. TFP = Net output / (Labour + Capital) inputs
Here, Net output = Total output – Intermediate goods or services purchased.
Numerical Problem
Q1. Student tuition at ABC University is $100 per semester credit hour. The
Education department supplements the university revenue by matching student
tuition, dollars per dollars. Average class size for typical three credit course is
50 students. Labour costs are $4000 per class, material costs are $20 per
student, and overhead cost are $25,000 per class. (a) Determine the total factor
productivity. (b) If instructors deliver lecture 14 hours per week and the
semester lasts for 16 weeks, what is the labour productivity?
Solution
Input
Labour Cost: $4000
Material Cost $20*50=1000
Overhead cost $25000
Labour input=14*16=224 hours
Total Input=+4000+1000+25000=30000

Output (revenue)
Student Tuition: $100/semester/hour
Total 50 students tution for a semester for 3 credit course=100*50*3=15000
Department supplements $15000
Total Output=30000
Total Factor Productivity=output/input=30000/30000=1
Labour Prodoctivity=output/labour input=30000/224=133.93

Q2) XYZ Furniture is a small furniture shop that focuses on making kitchen
chairs. The weekly dollar value of its output, including finished goods and work
in progress, is $14,280. The value of inputs, such as labour, materials, and
capital, is approximately $16,528.
(a) Compute the total productivity measure for XYZ Furniture.
(b) XYZ has just purchased a new sanding machine that processes 17 chairs in 8
hours. What is the productivity of the sanding machine?
(c) XYZ has hired two new workers to paint chairs. They have painted 10 chairs
in 4 hours. What is their labour productivity?
Solution
Input $16,528.
Output $14,280.
Total Productivity=output/input=14280/6528=86.4%
Productivity of the sanding machine=output/input hrs=17/8=2.125 chairs per
hour
Labour Productivity=10/(4*2)=1.25 chairs per hour
Q3) The producer of an apple crates company produces 270 crates per 100 logs
with: his current equipment. He currently purchases 100 logs per day, and each
log required 3 labour hours to process. He believes that he can hire a
professional buyer who can buy a better quality log at the same cost. If this is
the case, he increases his production to 290 crates per 100 logs. His labour
hours will increase by 8 hours per day. What will be the impact on productivity
(measured in crates per labour-hour) if the buyer is hired? What is the growth in
Productivity in this case?
Solution
Current situation (before hiring buyer)
 Logs purchased per day = 100
 Crates produced = 270 per 100 logs → so daily output = 270 crates
 Labour hours per log = 3 hours
 Total labour hours per day = 100×3=300100 \times 3 = 300100×3=300
hours
So, current productivity
=Output/Labour hours=270/300=0.9 crates per labour-hour
Step 2: New situation (after hiring buyer)
 Logs purchased = still 100
 Crates produced = 290 per 100 logs → daily output = 290 crates
 Labour hours = original 300 + extra 8 = 308 hours
So, new productivity =290/308≈0.9416 crates per labour-hour
Step 3: Growth in productivity

Q4) A bank employs three loan officers, each working eight hours per day. Each
officer processes an average of five loans per day. The bank's payroll cost for
the three officers is Rs 820 per day, and there is a daily overhead expense of Rs
500. The bank is considering the purchase of new computer software for the
loan operation. The software will enable each loan officer to process eight loans
per day, although the overhead expense will increase to Rs 550. i. Compute the
labour productivity before and after using software (in loans/labour-hr).
ii. Compute the multifactor productivity before and after using software (in
loans per unit cost). iii. Should the bank proceed with the purchase of the new
software? Explain.
Solution
3 officers, 8 hours each → total labour = 3 × 8 = 24 labour-hours/day.
Before: each processes 5 loans/day → total loans = 3 × 5 = 15 loans/day.
Payroll = Rs 820/day; overhead before = Rs 500/day; overhead after = Rs
550/day.
Before software
 Output = 15 loans, labour = 24 hrs
 Labour productivity = 15/24=0.62515/24 = 0.62515/24=0.625 loans per
labour-hour
After software
 Output = 3 × 8 = 24 loans, labour still = 24 hrs
 Labour productivity = 24/24=1.00 loan per labour-hour
Change: from 0.625 → 1.00 → increase of 60.0%.

Multifactor productivity (loans per unit cost)

Take cost = payroll + overhead.

Before
 Total cost = 820 + 500 = Rs 1,320/day
 MFP = 15/1320≈0.0113636approx 0.0113636
After
 Total cost = 820 + 550 = Rs 1,370/day
 MFP = 24/1370≈0.0175182
Change: from 0.0113636 → 0.0175182 → increase ≈ 54.16%.
Also useful to see cost per loan:
 Before: 1320/15=Rs 88.00
 After: 1370/24≈Rs 57.08
So cost per loan falls by ≈ Rs 30.92.

Competitiveness
It is the ability and performance of a firm to sell and supply goods and services
in a given market, in relation to the ability and performance of other firms.
Competitive advantage is the leverage a business has over its competitors.
Factors: Cost / Price, Quality, Product / Service differentiation, Flexibility /
Service, Speed, Innovation
Competitive advantage refers to factors that allow a company to produce goods
or services better or more cheaply than its rivals. These factors allow the
productive entity to generate more sales or superior margins compared to its
market rivals.
Competitive advantages are attributed to a variety of factors including cost
structure, branding, the quality of product offerings, the distribution network,
intellectual property and customer service

Decision Making Process

A decision is an act of selection or choice of one action from several
alternatives.
Decision making can be defined as the process of selecting a right and effective
course of action from two or more alternatives for the purpose of achieving a
desired result. Decision making is the essence of management
A plan cannot be said to exist unless a decision has been made.
People must have a clear understanding of alternative courses by which a goal
can be reached under existing circumstances and limitations.
They must find a best solution by selecting the alternative that most effectively
satisfies goal achievement.
Steps in Decision making process
Define the problem
Analyze the problem
Develop alternatives
Evaluate Alternatives
Select and Implement the decision
Follow up and feedback
Factors affecting decision making process: The decision situation, The
decision makers, Time, Decision support techniques, People affected by the
decision, Decision criteria
Importance of Decision Making: Better utilization of resources, Facing
problems and challenges, Achieving objectives, Increases efficiency, Facilitate
innovation, Motivates employees
Limitations of Decision Making: Time consuming, Compromised decision,
Biased decisions, Limited analysis, Uncontrollable environmental factors,
Uncertain future.

Selection of Alternatives
Once appropriate alternatives have been found, the next step in planning is to
evaluate them and select the one that will best contribute to the goal.
Evaluation is required in order to select the best alternative for implementation.
This is the point of ultimate decision making, although decisions must also be
made in the other steps of planning in selecting goals, in choosing critical
premises, and even in selecting alternatives.
While evaluating alternatives, the manager must compare the alternative plans
or decisions.
Experience, experimentation, research and analysis are the three common tools
or approaches employed in selecting from among alternatives of decision
making
Types of Decision
Techniques for Non Programmed Decisions: Delphi Method, Nominal Group
Technique, Experience, Quantitative Decision making tools, Quality Circles

Decision making under certainty, Risk and uncertainty

Decision Making under Different Conditions
1. Decision Making under Certainty
A condition of certainty exists when the decision-maker knows with
reasonable certainty what the alternatives are, what conditions are
associated with each alternative, and the outcome of each alternative.
Under conditions of certainty, accurate, measurable, and reliable
information on which to base decisions is available. The cause and effect
relationships are known and the future is highly predictable under
conditions of certainty. Such conditions exist in case of routine and
repetitive decisions concerning the day-to-day operations of the business.
o All facts, outcomes, and consequences are known.
o Example: Choosing between two machines with fixed cost and
productivity data.
o Tools: Cost-benefit analysis, optimization models (Linear
Programming).
2. Decision Making under Risk
 Risk refers to a decision making situation where there are different
possible outcomes and the probabilities of these outcomes can be
measured in some way. It involves choices with multiple outcomes where
the probability of each outcome is known or can be estimated. Every
business involves risks and most people do not like being involved in any
risky enterprise.
o Outcomes are not certain, but probabilities of different results are
known.
o Example: Launching a new product with estimated probabilities of
success or failure.
o Tools: Expected Monetary Value (EMV), Expected Opportunity
Loss (EOL), expected value of perfect information (EVPI)
probability analysis, decision trees.
o Types of Risk
 Systematic: Market risk, inflation risk, interest rate risk
 Unsystematic: business risk, credit risk, liquidity risk
3. Decision Making under Uncertainty
Conditions of uncertainty exist when the future environment is
unpredictable and everything is in a state of flux. The decision-maker is
not aware of all available alternatives, the risks associated with each, and
the consequences of each alternative or their probabilities. The manager
does not possess complete information about the alternatives and
whatever information is available, may not be completely reliable. – In
the face of such uncertainty, managers need to make certain assumptions
about the situation in order to provide a reasonable framework for
decision : making. They have to depend upon their judgment and
experience for making decisions.
o Outcomes are unknown and probabilities cannot be assigned.
o Example: Entering a completely new market with no prior data.
o Tools:
 Maximax (choose the optimistic maximum payoff).
 Maximin (choose the best of worst outcomes-pessimistic).
 Minimax Regret (minimize potential regrets).
  Laplace Criterion (Equal Probability Approach-equally
likely)

Definitions:
A payoff matrix is a tool used in decision-making and game theory to represent
the possible outcomes (payoffs) of different strategies chosen by players
(decision-makers).
Expected Monetary Value (EMV): It is a decision-making tool used under risk
conditions (where probabilities of different outcomes are known). EMV helps in
comparing different decision alternatives by calculating the weighted average of
all possible payoffs, considering their associated probabilities.
EMV=∑(Probability of outcome × Payoff of outcome)
Steps to Calculate EMV:
1. List all possible decision alternatives.
2. Identify possible outcomes for each alternative.
3. Assign probabilities to each outcome (they should sum to 1).
4. Multiply the payoff of each outcome by its probability.
5. Sum them up to get the EMV for each decision.
6. Choose the decision with the highest EMV (if goal is profit) or lowest
EMV (if goal is cost).

The Maximax Criterion: is a decision-making rule under conditions of

uncertainty. It is often used when a decision maker is highly optimistic. The
Maximax criterion suggests: Choose the alternative with the maximum
possible payoff.
Steps 1. Choose maximum payoff for each Act 2. Select maximum out of these
maximums. 3. Corresponding Act is a best decision
The Maximin Criterion is a decision-making rule under uncertainty that
reflects a pessimistic (conservative) approach. Choose the best of the worst
outcomes.
Steps 1. Choose minimum payoff for each Act 2. Select maximum out of these
minimum. 3. Corresponding Act is a best decision

The Minimax Regret Criterion is a decision-making rule under uncertainty

that focuses on minimizing future regret rather than maximizing payoff
directly. Choose the alternative that minimizes the maximum regret you could
face.
Steps 1. Choose maximum payoff for each Event 2. Calculate maximum payoff
– individual payoff for each combination of Act &Event. This is known as
Regret value for that particular combination of Act and Event 3. Select
maximum Regret for each course of Action. 4. Select minimum out of these
maximum. 5. Corresponding Act is a best decision
Laplace Criterion (Decision under Uncertainty)
When the probabilities of different states of nature are unknown, the
Laplace criterion assumes that all states are equally likely. The decision maker
calculates the average (expected) payoff for each alternative by assigning
equal probability to all states. Then, the alternative with the highest average
payoff is chosen. Treat all states as equally probable and pick the alternative
with the best average outcome

Numerical Problems
Q5) There is a newspaper boy and he is thinking of selling, a special one-time
edition of a sports magazine to his regular newspaper customers. Based on his
knowledge of his customer, he believes that he can sell between 9 to 12 copies.
The magazines can be purchased at 8$ each and can be sold for 12$ each.
Magazines that are not sold can be returned to the publisher for a refund of
50%. Construct the payoff table.
Solution
Purchase price of magazine = 8 $
Selling price of magazine = 12 $
Refund for unsold magazine = 50% of 8 = 4 $
 Demand can be 9, 10, 11, or 12 copies.
Decision: The boy can order 9, 10, 11, or 12 copies.
Need: Payoff table (Profit) = Revenue – Cost.
Step 1: General payoff formula
If the boy orders Q copies and actual demand is D:
 If D ≥ Q:
All Q copies are sold.
Profit = (Selling price × Q) – (Purchase price × Q) = (12Q – 8Q) = 4Q
 If D < Q:
Only D copies are sold, (Q–D) copies returned.
Profit = (12D) + (Refund × (Q–D)) – (8Q)
= 12D + 4(Q–D) – 8Q
= 12D + 4Q – 4D – 8Q
= 8D – 4Q
Step 2: Construct the payoff table
Order Quantity
Demand = 9 Demand = 10 Demand = 11 Demand = 12
(Q)
9 36 36 36 36
10 32 40 40 40
11 28 36 44 44
12 24 32 40 48

Expected Monetary Value (EMV) for the above problem

EMV=∑(Probability of outcome × Payoff of outcome)
Solution: We assume each demand (9, 10, 11, 12) is equally likely (probability =
0.25).
Payoff table:
Order Q Payoffs for D=9,10,11,12 Sum EMV = Sum/4
9 36, 36, 36, 36 144 36.00
10 32, 40, 40, 40 152 38.00
11 28, 36, 44, 44 152 38.00
12 24, 32, 40, 48 144 36.00

Result: EMV is highest (tie) at $38.00 for ordering 10 or 11 copies.

Recommendation: since 10 and 11 tie on EMV, a risk-averse seller would
typically order 10 (fewer unsold copies / lower chance of returns). If you prefer
to prioritize avoiding stockouts (serve more customers), pick 11.

Regret (opportunity loss) table and the minimax-regret decision for the
above problem
We have the payoff table
Order Quantity (Q) Demand = 9 Demand = 10 Demand = 11 Demand = 12
9 36 36 36 36
10 32 40 40 40
11 28 36 44 44
12 24 32 40 48

1) Regret table
First find the best payoff for each demand (column maxima):
 D=9 → max = $36
 D=10 → max = $40
 D=11 → max = $44
 D=12 → max = $48
Regret = (column max) − (payoff).
Order Q Regret at D=9 D=10 D=11 D=12 Max regret
9 0 4 8 12 12
10 4 0 4 8 8
11 8 4 0 4 8
12 12 8 4 0 12

2) Minimax-regret decision
 The maximum regrets are: Q=9 → 12; Q=10 → 8; Q=11 → 8; Q=12 →
12.
 The minimum of these max regrets is 8, achieved by ordering 10 or 11
copies.

Decision Trees
A decision tree is the graphical depiction of all the possibilities or outcomes to
solve a specific issue or avail a potential opportunity. It is a useful financial tool
which visually facilitates the classification of all the probable results in a given
situation. This graphic representation is characterized by a tree-like structure in
which the problems in decision making can be seen in the form of a flowchart,
each with branches for alternative choices. A Decision Tree Analysis is created
by answering a number of questions that are continued after each affirmative or
negative answer until a final choice can be made
 Decision Tree = a graphical tool to evaluate decision alternatives under
risk and uncertainty.
 Structure:
o Decision nodes (□) – where choices are made.
o Chance nodes (○) – where outcomes depend on probability.
o Branches – represent decisions or events.
 Helps visualize options, assign probabilities, and calculate expected
monetary values (EMV) to choose the best alternative.
Decision Tree Analysis
This Analysis is commonly represented by lines, squares and circles.
The squares represent decisions
The lines represent consequences
The circles represent uncertain outcomes.
By keeping the lines as far apart as possible, there will be plenty of space to add
new considerations and ideas.
The representation of the decision tree can be created in four steps:
1. Describe the decision that needs to be made in the square.
2. Draw various lines from the square and write possible solutions on
each of the lines.
3. Put the outcome of the solution at the end of the line. Uncertain or
unclear decisions are put in a circle. When a solution leads to a new
decision, the latter can be put in a new square.
4. Each of the squares and circles are reviewed critically so that a
final choice can be made.
Numerical Problems
Q6) A cell phone manufacturer has invented a 3D phone. The company wants to
take decision whether to manufacture the phone, take royalty from another
manufacturer, or sell rights of the invention and take a lump sum amount of
₹50,000. The profits associated and probability of these alternatives is given in
the table below. Represent the problem as a decision tree and suggest a decision
to maximise profits.

Solution
Calculate EMV
1) Manufacture the phone
 High: 0.25×₹200,000=₹50,000
 Medium: 0.40×₹50,000=₹20,000
 Low: 0.35×(−₹10,000)=−₹3,500
  Sum (EMVManufacture) = ₹50,000+₹20,000−₹3,500=₹66,500.
2) Take royalty
 High: 0.25×₹60,000=₹15,000
 Medium: 0.40×₹40,000=₹16,000
 Low: 0.35×₹20,000=₹7,000
 Sum (EMVRoyalty ) = ₹15,000+₹16,000+₹7,000=₹38,000.
3) Sell rights (lump sum)
 EMV Sell = certain ₹50,000.

Decision Tree
[Decision]
├─ Manufacture → (Chance)
│ ├─ High (0.25): ₹200,000
│ ├─ Medium (0.40): ₹50,000
│ └─ Low (0.35): -₹10,000
│ → EMV = ₹66,500
├─ Take Royalty → (Chance)
│ ├─ High (0.25): ₹60,000
│ ├─ Medium (0.40): ₹40,000
│ └─ Low (0.35): ₹20,000
│ → EMV = ₹38,000
└─ Sell Rights (certain) : ₹50,000
Best decision (maximising expected profit): Manufacture the phone, since
₹66,500 is the highest expected value.

Q7) Modern forest management uses controlled fires to reduce fire hazards and
to stimulate new forest growth. Management has the option to postpone or plan
a burning. In a specific forest tract, if burning is postponed, a general
administrative cost of Rs. 300 is incurred. If a controlled burning is planned,
there is a 50% chance that good weather will prevail and burning will cost Rs.
3200. The results of the burning may be either successful with probability 0.6 or
marginal with probability 0.4. Successful execution will result in an estimated
benefit of Rs. 6000, and marginal execution will provide only Rs. 3000 in
benefits. If the weather is poor, burning will be cancelled incurring a cost of Rs.
1200 and no benefit. i) Develop a decision tree for the problem. (ii) Analyse the
decision tree and determine the optimal course of action.
Solution
Decision Tree Breakdown
1. Postpone Burning:
o Cost: Rs 300
o Benefit: Rs 0
o Net Result: Rs -300
2. Plan Controlled Burning:
o Probability of Good Weather: 50%
 If Successful (60% chance):
 Cost: Rs 3200
 Benefit: Rs 6000
 Net Result: Rs 6000 - Rs 3200 = Rs 2800
 If Marginal (40% chance):
 Cost: Rs 3200
 Benefit: 3000
 Net Result: Rs 3000-3200=-200
o Probability of Poor Weather: 50%
 Cost: Rs 1200
 Benefit: Rs 0
 Net Result: Rs -1200
Decision Tree Analysis
Calculating Expected Monetary Values (EMV)
  EMV for Postponing Burning:
o EMV = Rs -300
 EMV for Planning Controlled Burning:
o EMV = (0.5 * (0.6 * Rs 2800 + 0.4 * Rs -200)) + (0.5 * Rs -1200)
o EMV = (0.5 * (Rs 1680 - Rs 80)) + (0.5 * Rs -1200)
o EMV = Rs 800 - Rs 600
o EMV = Rs 200
[Decision]
├─ Postpone → certain: net = −₹300 (EMV = −₹300)
└─ Plan burning → (Chance: Weather)
├─ Good (0.5) → (Chance: Burning result)
│ ├─ Successful (0.6): net = ₹2,800
│ └─ Marginal (0.4): net = −₹200
│ → Expected (given good) = ₹1,600
└─ Poor (0.5) → burning cancelled: net = −₹1,200
→ EMV(Plan) = 0.5×1,600 + 0.5×(−1,200) = ₹200
Conclusion
Comparing the EMVs:
 EMV for Postponing Burning: Rs -300
 EMV for Planning Controlled Burning: Rs 200
Final Answer
The optimal course of action is to plan the controlled burning, as it has a
higher expected monetary value of Rs 200 compared to postponing the burning,
which results in a loss of Rs 300.
Models of decision making.
1. Rational Model
 Assumes decision makers are logical and objective.
 Steps: define problem → identify alternatives → evaluate → choose best.
  Suitable for structured problems with clear data.
2. Bounded Rationality Model (Herbert Simon)
 People have limited information, time, and cognitive ability.
 Instead of optimizing, they satisfice (choose the first satisfactory option).
3. Incremental Model
 Decisions are made step by step with small adjustments, not drastic
changes.
 Useful in uncertain or dynamic environments.
4. Garbage Can Model
 Decisions are made in a chaotic, unstructured way.
 Problems, solutions, participants, and opportunities mix randomly like in
a garbage can.
 Applies to complex organizations with unclear goals.
5. Intuitive Model
 Relies on gut feeling, experience, and instincts rather than structured
analysis.
 Often used in urgent or uncertain situations. This is less structured
because of lack of time and may use previous knowledge of similar goals
or obstacles to determine a useful solution.
 Steps followed are:– Define the goal or obstacle.– Identify similar goals
or obstacles.– Determine a usable solution

Economic Man Model

The economic man model, or homo economicus, is a theoretical construct in
economics representing an idealized individual who is perfectly rational,
possesses complete information, and consistently makes decisions to maximize
their own personal utility or profit. Developed in the 19th century, this model
serves as a fundamental assumption in many economic theories, particularly
classical and neoclassical economics, though it has been heavily criticized for
being overly simplistic and unrealistic compared to actual human behavior.
Key Characteristics are
 Rationality: Economic man makes logical, consistent decisions based on
available information.
 Self-Interest: They act primarily out of self-interest to improve their own
well-being or gain profit.
 Perfect Knowledge: This individual possesses all relevant information
needed to make optimal choices.
 Utility Maximization: The goal of economic man is to get the most
satisfaction or benefit from their economic activities.
 Consistency: Choices are consistent over time