Thursday, August 25, 2016

Economics as Numbers or Behaviors?

All economics is behavioral. Most people think of economics as the science of serious number crunching. It is true that numbers are the general way in which we report items. How much money was spent, labor hours, GDP, etc....but the numbers are only a tool of measurement. Whether we are discussing Rational Choice Theory, Bounded Rationality, Prospect Theory, Duel-Systems theory or just about any other theory we are basically talking about behavior.

Looking at the numbers can give you trends about behaviors but are not part of the subset of data you need understand how people think and why they make the decisions they do. Fields like neuro-economics help us understand how on a subconscious level we make decisions that impact purchasing choices that lead to large scale economic data.

It is important to remember that all large scale data is a collection of individual behaviors. These behaviors are based on how we feel about items, our needs and how we view the world around us. For example, if we believe we are getting a new job then we might spend more while if we feel our prospect are less we might spend less.

It is assumed we are all rational in our thoughts. This isn't always the case. We sometimes base our decisions on feelings and emotions. Mom's apple pie memories might push us to purchase apples, apple soap, or apple candles because it makes us "feel" good. The same an be said for our self-image and how it could also impact our the types of purchases we make to maintain that image.

It is assumed that all people are trying to enhance their position in life and hope to find prospects for doing this. They will move through different decision making models as they determine the best choices for themselves. They might think intuitively and then move to more objective cognition. The end result is choices lead to micro economic activities and then to macro economics that have national significance.

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