User:Sharpie7Man/sandbox

In the long run, consumers are better equipped to forecast their consumption preferences. They have ample time to make decisions, and therefore will act with a System 2 style of thinking which is more thought-out, planned, and rational. When consumers act this way, their utility and satisfaction improves.

Since there are constraints in the short run, consumers must make decisions in quick time with respect to their current level of wealth and level of knowledge. This is similar to Daniel Kahneman’s System 1 style of thinking where decisions made are fast, intuitively, and impulsively. In this time frame, consumers may act irrationally and use biases to make decisions. A common bias is the use short-cuts known as heuristics. Due to differences in various situations and environments, heuristics that may be useful in one area may not be useful in other areas and lead to sub-optimal decision making and errors. Thus, it becomes difficult for businesses, who are tasked to forecast the demand curves of consumers, to make their own ideal decisions.

The decisions made by businesses in the short run tend to be focused on operational aspects, which is defined as specific decisions made to manage the day to day activities in the company. Businesses are limited by many things including staff, facilities, skill-sets, and technology. Hence, decisions reflect ways to achieve maximum output given these restrictions. In the short run, increases and decreases in variable factors are the only things that can affect the output produced by firms. They could change things such as labour and raw materials. They are not able to change fixed factors such as buildings, rent, and know-how since they are in the early stages of production.