EconAir

  Assumptions Economic theory starts with a set of assumptions about behavior.  The most basic is the assumption of rationality in the limited sense that individuals can calculate and compare the marginal costs and marginal benefits of decisions.  They then pick that decision that maximizes net benefit. Economists and psychologists have attacked this assumption.  Some have won Nobel Prizes in Economics. It is refuted by virtually everything that has been learned in cognitive psychology and neuroscience. Yet it remains the foundation of economic theory. This assumption is not even supported by one of economists’ favorite tool, game theory.  One famous experiment, the “ultimatum game,” demonstrates that moral considerations can overcome maximizing income. This outcome seems to hold for many different social groups and many different cultures. Profit Maximization Maybe the most defensible assumption is profit maximization.  While it is...

FIND POSTS BY CATEGORY The Beginning of the Modern Global Economy:  The Economic Rise of England Before the Industrial Revolution The Beginning of the Industrial Revolution in England and America The theme of the following five sections of the blog is that innovation and information, not price competition, are the main factors for understanding economic growth, competition, market structure and analysis. Basic Concepts and Theory Corporate Strategies And Management Market Behavior and Structure Market Dynamics and Information:  How Markets Work Economic Theory and Markets There is beginning a historic change in future populations and their demographics. This will interact with other variables and have a serious, maybe profound, effect on future economic growth. Demographics, Population Projections and Economics American History American Economic History Politics of the United States The Roman Republic and America - Differences and Some Possible Parallels China India Niger...