Managerial Econ Ch 2

Product-Of-The-Environment model

Argues that the behaviors of individuals are determined by their upbringings. Some cultures provide positive attributes while others provide negative attributes.

Sunk costs

Costs and benefits that have already been incurred and, hence, are irrelevant to the current economic decision.

Risk Averse

Holding the expected payoff fixed, prefer a lower standard deviation (lower risk) -Experience an increase in utility from an increase in expected value -Experience a decrease in utility from an increase in standard deviation

Only-Money-Matters Model

The belief that the only important component of a job is the level of monetary compensation. However, economists find that people have an incredibly broad range of interests, extending beyond money.

Economic Approach to behavior

A manager can motivate desired actions by establishing appropriate incentives. In contrast to other models, the economic framework provides managers with a concrete guidance on how to alter behavior.

Good-Citizen Model

The assumption that employees have a strong personal desire to do a good job; they take pride in their work and want to excel. There is no reason to have incentive pay, since individuals are interested only in doing a "good job". There is never a conflict btwn an employee's personal interest and the interest of the company. In contrast, in the economic model, employees maximize their own utility and potential conflicts of interest often arise.

Marginal costs/benefits

The incremental costs and benefits that are associated with making a decision. It is these costs/benefits that are important in economic decision making. When marginal benefits exceed marginal costs, action should be taken.

Happy-Is-Productive Model

The primary difference is that in this model, employees exert high effort when they are happy. In the economic model, employees exert effort because of rewards.