Tuesday, October 27, 2009

A Quick Thought

Today someone asked how economic can be a field where the same data results in two totally different theories. The answer is that economic systems are ultimately based on individuals, and not all will act rationally and in their own self interest. In a perfect world, everyone would be a profit maximizer who did all of their actions to maximize benefit compared to cost, however that is not true for societies of millions upon millions of people. People become swayed by emotion, confuse short term and long term goals, and make decisions with the interests of others in mind. Since these actions are a part of human behavior, economic models must deal with such variables and there is a discord between the theoretical and the practical.

No comments: