At its core, economics is a theory of human behavior. Economists assume when an individual is to make a decision, the decision-making process is based on making choices that result in the most optimal level of benefit or utility for the individual.
Economists see people as the rational beings that respond with consistency and logic to economic variables such as prices and interest rates, and even to things like the weather, which can affect the economy. What this boils down to is that people make decisions in a way that maximizes their economic pay-off – they will always buy the car or coat that is exactly in line with their preferences, at the lowest price possible.
Economics’ version of rationality requires people to be able to gather and assess information – for example, the prices and characteristic of different goods – and to then calculate the best decision with ease. In reality, far from being cold, rational calculators, people are often capricious and emotional, and may at best make economic decisions that are ‘good enough’ or based on plausible rules of thumb rather than a thorough reckoning. Nevertheless, economists see rationality as a useful simplification and use it as a basis for most of their theories.