Caveat about Economics

My last post was about how important it is to learn about economics. I stand by that statement but also offer a warning. Traditional economics considers humans like robots that can gather and consider all the data instantly and then make purely rational and correct decisions.

That is not how humans are built.

Two simple examples:

  1. Think of the last time you were really angry. Did you make rational decisions?
  2. Have you bought a used car (or anything used)? Did you know everything about the condition of the car so you could properly factor the risks of ownership into the cost?

The answer to both is obviously, “No.” We are not always rational nor do we always have access to all the relevant information for decision making.

Economics is great to know. Truly it is. But spend time studying and learning about human psychology as well. Combining psychology and economics is a powerful framework for making decisions and understanding the world.

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