Based on the case article entitled: “Mortgage Crisis Analysis – What Caused the Mortgage Crisis?” by Aubrey Clark, the mortgage crisis was instigated by consumer demand, oblivious politicians, and the competition against banks, small brokers and lenders.
There are three types of mortgages which are the Government (FHA), Conforming (Fannie Mae and Freddie Mac) and the private subprime lenders that are usually funded by larger banks. These lenders have established a practice of buying the loan from the same broker after it was closed down, and its market are the consumers with good or bad credit or unproven income.
When the proverbial bubble occurred in the housing market, the units began to depreciate in value, which caused the market to slow …show more content…
Based on the Expected Utility Theory, the total utility increases as the individual consumes more goods or services while the marginal utility decreases with each additional consumption (Heakal, 2009). More so, this theory mainly focuses on the threshold of satisfaction of the consumers, as this will greatly affect their consuming power or satisfaction with the goods or services.
The mortgage crisis would not have developed in the first place if the economists, banks or the small brokers and lenders have considered about this theory because if then, they would have planned better in terms of the quantity of portfolios or houses that will be sold in time.
These companies have just thought of the increasing demand for houses and mortgages that they did not consider that consumers has a threshold for satisfaction and always thinking of the possible benefits that they may gain from consuming a certain product or goods, which means that they will not keep on buying the same product or service in a short span of …show more content…
It is then advisable for businesses that they plan ahead through the conduct of forecasting and to consider the possible risks or uncertainties that they may encounter in handling such business.
Bounded Rationality According to Herbert Simon, as mentioned in the Satisficing Behavior of International Encyclopedia of the Social Sciences (2008), “satisficing behavior is to describe human choice among alternative behaviors recognizing bounded rationality”, wherein it particularly explains that the human brain information-processing capacity cannot anticipate all comprehendible alternatives and consequences of their human behavior or satisfaction. It is said that an individual cannot be totally rational, especially when it comes to decision making as there are several factors that may affect their satisfaction, considerations, expected outcomes such as their emotions, as well as the influence of the people around them. They may have wanted one thing in this particular time, but it should not be assumed that they will still want the same thing on another time because consumers tend to look for alternatives which they may perceive as better compared to their previous choice or
There are three types of mortgages which are the Government (FHA), Conforming (Fannie Mae and Freddie Mac) and the private subprime lenders that are usually funded by larger banks. These lenders have established a practice of buying the loan from the same broker after it was closed down, and its market are the consumers with good or bad credit or unproven income.
When the proverbial bubble occurred in the housing market, the units began to depreciate in value, which caused the market to slow …show more content…
Based on the Expected Utility Theory, the total utility increases as the individual consumes more goods or services while the marginal utility decreases with each additional consumption (Heakal, 2009). More so, this theory mainly focuses on the threshold of satisfaction of the consumers, as this will greatly affect their consuming power or satisfaction with the goods or services.
The mortgage crisis would not have developed in the first place if the economists, banks or the small brokers and lenders have considered about this theory because if then, they would have planned better in terms of the quantity of portfolios or houses that will be sold in time.
These companies have just thought of the increasing demand for houses and mortgages that they did not consider that consumers has a threshold for satisfaction and always thinking of the possible benefits that they may gain from consuming a certain product or goods, which means that they will not keep on buying the same product or service in a short span of …show more content…
It is then advisable for businesses that they plan ahead through the conduct of forecasting and to consider the possible risks or uncertainties that they may encounter in handling such business.
Bounded Rationality According to Herbert Simon, as mentioned in the Satisficing Behavior of International Encyclopedia of the Social Sciences (2008), “satisficing behavior is to describe human choice among alternative behaviors recognizing bounded rationality”, wherein it particularly explains that the human brain information-processing capacity cannot anticipate all comprehendible alternatives and consequences of their human behavior or satisfaction. It is said that an individual cannot be totally rational, especially when it comes to decision making as there are several factors that may affect their satisfaction, considerations, expected outcomes such as their emotions, as well as the influence of the people around them. They may have wanted one thing in this particular time, but it should not be assumed that they will still want the same thing on another time because consumers tend to look for alternatives which they may perceive as better compared to their previous choice or