Hi, please explain it step by step, thank you!

Do you think people's savings decisions are optimal in the economists' sense? Why or why not? Do you think it might still be helpful to model people's savings behaviour as if they were rational?

Translations of this survey have been given to thousands of people around the world, and the results are not encouraging. In spite of the fact that these questions test only the most basic knowledge about interest, ination and diversification, there are only a handful of countries where the majority of the population is able to get all three of them right, and even then it is only a very thin mai ority {an edited version of the fraction of people who got each question right by country are presented below - for the full version, see Table 2 of the Lusardi 8: Mitchell paper cited in the footnote]. In some formerly communist countries, the average level of knowledge is so poor that the survey respondents would have been better off guessing randomly5. This pervasive level of nancial illiteracy looks like it's a problem for the theories that we have been discussing - if people can't answer these basic questions, then they can't very 1 "1 :2 well be expected to calculate FV = 2:11 a(1 + 1' " = a [It \"3 J, or to make use of\"? o) = [+1 if; can they? Yet economists go on using their theories, in spite of the fact that they know that most people are nancially illiterate. Are the economists crazy? 0r might there be a good justification for modelling behaviour as rational in spite of widespread ignorance? Discuss {and note that there is no single correct answer].