Optimal decision in the context of "Choice under uncertainty"

The term Homo economicus, or economic man, is the portrayal of humans as agents who are consistently rational and narrowly self-interested, and who pursue their subjectively defined ends optimally. It is a wordplay on Homo sapiens, used in some economic theories and in pedagogy.

In game theory, Homo economicus is often (but not necessarily) modelled through the assumption of perfect rationality. It assumes that agents always act in a way that maximize utility as a consumer and profit as a producer, and are capable of arbitrarily complex deductions towards that end. They will always be capable of thinking through all possible outcomes and choosing that course of action which will result in the best possible result.

In decision theory, regret aversion (or anticipated regret) describes how the human emotional response of regret can influence decision-making under uncertainty. When individuals make choices without complete information, they often experience regret if they later discover that a different choice would have produced a better outcome. This regret can be quantified as the difference in value between the actual decision made and what would have been the optimal decision in hindsight.

Unlike traditional models that consider regret as merely a post-decision emotional response, the theory of regret aversion proposes that decision-makers actively anticipate potential future regret and incorporate this anticipation into their current decision-making process. This anticipation can lead individuals to make choices specifically designed to minimize the possibility of experiencing regret later, even if those choices are not optimal from a purely probabilistic expected-value perspective.

Utility maximization was first developed by utilitarian philosophers Jeremy Bentham and John Stuart Mill. In microeconomics, the utility maximization problem is the problem consumers face: "How should I spend my money in order to maximize my utility?" It is a type of optimal decision problem. It consists of choosing how much of each available good or service to consume, taking into account a constraint on total spending (income), the prices of the goods and their preferences.

Utility maximization is an important concept in consumer theory as it shows how consumers decide to allocate their income. Because consumers are modelled as being rational, they seek to extract the most benefit for themselves. However, due to bounded rationality and other biases, consumers sometimes pick bundles that do not necessarily maximize their utility. The utility maximization bundle of the consumer is also not set and can change over time depending on their individual preferences of goods, price changes and increases or decreases in income.