Economic philosophy addresses conceptual, methodological, and ethical challenges within the scientific field of economics. The central focus is on questions related to methodology and epistemology—the methods, concepts, and theories economists employ in an effort to comprehend how economic processes operate. The philosophy of economics covers issues such as social justice, the ethical foundations of human satisfaction, and the trade-offs that result from economic actions. Economic reasoning has an impact on justice and human welfare, but more importantly, it frequently makes implicit but basic ethical assumptions that philosophers of economics have found intriguing to study. Economists' precise social assumptions are also a focus of economic philosophy.
Philosophers are neither empirical researchers nor are they formal theory-creators. So what constructive role would philosophy ever have to play in economics? There are several. First, philosophers are well-equipped to examine an empirical discipline's logical and rational features. How do theoretical claims in the domain relate to empirical evidence? How do pragmatic features of theories, such as simplicity, ease of computation, and the like, play a role in the rational appraisal of a theory? How do presumptions and traditions of research structure the forward development of the theories and hypotheses of the discipline? Second, philosophers are well-equipped to consider topics concerning the concepts and theories that economists employ—for example, economic rationality, Nash equilibrium, perfect competition, transaction costs, or asymmetric information. Philosophers can offer valuable analyses of the strengths and weaknesses of such concepts and theories, thereby helping practicing economists further refine their discipline's theoretical foundations. In this role, the philosopher serves as a conceptual clarifier for the discipline, working in partnership with the practitioners to bring about more successful economic theories and explanations.
This leads us to question whether economics is a science or an art.
Some economists argue that economics is a social science because it studies human behavior and social institutions. In contrast, others claim that it is a natural science because it uses mathematical models to explain economic phenomena. Some argue that economics is a hybrid of both social and natural sciences.
According to us human psychology plays a big role in daily life economic decision-making process. Examples of such can be seen when we delve into behavioral economics.
To start, let's define behavioral economics. Behavioral economics is a field of economics that studies how people make decisions in real-world situations, including situations that involve uncertainty, social influence, and cognitive biases. Unlike traditional economics, which assumes that people are rational and always make decisions that maximize their utility, behavioral economics considers the many factors that can influence decision-making.
Now, let's try an interactive activity to help illustrate some of the critical concepts of behavioral economics. Imagine you are offered the following two options:
Choice A: You can receive a guaranteed payment of $500.
Choice B: You can take a 50% chance of receiving $1,000 or a 50% chance of receiving $0.
According to traditional economics, a rational person would choose Choice B because it has an expected value of $500 ($1,000 x 0.5 + $0 x 0.5), which is equal to the guaranteed payment of Choice A. However, many people might choose Choice A because they are risk-averse and prefer the certainty of a smaller gain over the uncertainty of a potentially larger gain or no gain. This is an example of how people's risk aversion may deviate from the rational behavior predicted by traditional economics.
On the other hand, behavioral economics recognizes that people's risk aversion is influenced by various factors such as loss aversion, framing effects, and the endowment effect. For instance, people may be more sensitive to losses than gains (loss aversion). Therefore, they may prefer the certainty of a smaller gain over the uncertainty of a potentially larger gain or no gain. Additionally, people's decisions may be influenced by how the choices are presented (framing effects) or by their emotional attachment to what they already possess (the endowment effect).
Commentaires