Yesterday I listened to an episode of Radio Open Source about economics. It was very interesting and yet because I am so far away from Christopher Lydon in world view that I kept looking at almost every answer that his guests gave in a different light.
Economics used to be about markets and predictions: tax rates, interest rates, fiscal policy, monetary policy. In short, about money. But with the advent of behavioral economics, economists began to realize that markets are simply aggregations of human choices, and that to understand these choices — imperfect, often irrational or counterintuitive — is to act as a psychologist. For this insight the economist Amost Tversky and the psychologist Daniel Kahneman won the Nobel Prize together in 2002.
If economics is not necessarily just about money, then, but about human behavior, it can be applied to any number of other fields. In the Times article, brand-new economist Emily Oster applied her talent to the field of AIDS research to solve a problem that epidemiologists couldn’t. Oster is one of many, a generation of economists looking for new fields to conquer.
To make this concrete on a personal level, a good friend of mine says the most valuable thing he learned in college was the economic idea of a sunk cost: if you can’t get back what you’ve already put in, it shouldn’t have any bearing on any future decisions. It’s a good concept to have on hand, he reasons, when you’re considering leaving a partner. Or a job.
What can we learn when we use economics to understand not just markets, but ourselves? Where else is economics shedding light? And what profoundly personal problems do you wish you had a bright young economist on call to solve?
When it comes to human behavior I feel that much of it is drop dead simple to explain. I tend to look at it as cause and effect. I love to play “what if” scenarios in my head. I did notice one thing in all of their analysis on the show.
In their asking about schools and neighborhoods, test scores and parents that have money, I realized that my kids will never get to be part of that equation, their data is off the table as far as education is concerned. And so is that of most home school kids. So while intellectuals argue over what the cure for government schools will be, my children will be learning life skills that will prepare them for the world they will have to live in, and the ability to think for themselves (anti-groupthink), and that they are to avoid debt at all costs so that they have the power to determine and follow their dreams.
What percentage of the income of the average American family goes towards debt repayment including home mortgage? What would the average family do with that money if it was available as disposable income? Would they consider changing jobs or take more risks that could benefit them? Please comment.
Update, Maury says that I should check out the Rosary Army Podcast #124,
You can listen now,