Rational Decision Making: Constructing the Model.

At some point in the decision-making process, the various elements must be brought together. The objective, relevant data, feasible alternatives, and selection criterion must be merged. For example, if one were considering borrowing money to pay for an automobile, there is a mathematical relationship between the following variables for the loan: amount, interest rate, duration, and monthly payment.

Constructing the interrelationships between the decision-making elements is frequently called model building or constructing the model. Toan engineer,modelingmaybe a scaled physical representation of the real thing or system or a mathematical equation, or set of equations, describing the desired interrelationships. In a laboratory there may be a physical model, but in economic decision making, the model is usually mathematical.

In modeling, it is helpful to represent only that part of the real systemthat is important to the problemat hand. Thus, the mathematicalmodel of the student capacity of a classroom might be,
1  =  length of classroom, in meters
w =  widthof classroom,inmeters
k  =  classroom arrangement factor

The equation for student capacity of a classroom is a very simple model; yet it may be adequate for the problem being solved.


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