Identify and describe the models of optimal-decision making.

Question

What will be an ideal response?

Answer 1

Models of optimal decision-making are attempts to develop more abstract modes of optimal policy processes and optimal policies. Most economic models are driven by attempts to define optimal policy outcomes and to design institutional arrangements that may be capable of producing those desired outcomes. While these optimal modes may not be achievable in the real world of politics, they can function as a useful standard against which to compare “real” policy processes and outcomes. If utilitarian assumptions are converted into measurements, models can be used to advise policymakers about the best choices. Economic models begin with the justification for public sector intervention into the economy and society. Interventions in the market must be justified by a market failure: public goods, externalities, and/or lack of adequate information. Economic models also look at the capacity to change from one policy position to another, especially finding Pareto optimal moves. Though, most policy choices involve making choices may benefit some people but at the same time make others worse off. Optimal budget making in the public sector is supposed to be an allocation in which the marginal utility of a dollar spent for each and every activity covered by the budget is equal. Applied approaches include cost-benefit analysis apply the same utilitarian logic for thinking about public policy. The best policy is one that maximizes total utility, with that utility being considered in economic terms. Cost-benefit analysis accepts that decisions will have negative consequences for some people and assess the balance between the positive and negative contributions to total social utility.