Final answer:
The functional model of decision making typically involves a cost/benefit analysis and considers both transaction and conformity costs to make informed decisions. The economic model of this process is a simplified representation, not a literal description of actual decision-making behavior.
Step-by-step explanation:
The functional model of decision making includes analyzing and weighing the costs and benefits associated with various options to make an informed decision. This model involves a cost/benefit analysis, considering both transaction costs and conformity costs. Transaction costs refer to the resources required to reach and implement a decision, such as time and effort, whereas conformity costs represent the potential sacrifices and compromises made by individuals within a group when a decision is made. Such a decision-making model can also apply to states, as they assess the risks and rewards to determine which actions to take for optimal outcomes.
Although the economic model of decision-making simplifies the complexity of human behavior, it does not serve as a literal depiction of decision-making processes across individuals, firms, and governments—which are often more nuanced and influenced by factors beyond mere economic considerations. Instead, it is better understood as an approach to model how decisions might be made pragmatically, assuming rational behavior that aims to maximize utility.