DigoPaul: Comprehensive definitions of Economics in
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meaning of Economics.
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Macroeconomics, the part of the social economy that deals with the total size
of the economy, such as price level, national product, total investment and so
Macroeconomics thus tries to provide an overall overview of society's economy
by means of a small number of aggregate economic sizes, as opposed
Microeconomics, the part of the social economy that deals with the problems
and decisions of a single individual or within a single enterprise. For example,
it may be the market for a single commodity or service or it may be the theory
of the individual's demand for goods and services.
Traditionally, microeconomic theory has been built from the ground up from
individuals' preferences and utility maximization and corporate profit
maximization. This is in contrast to macroeconomic theory, which has
traditionally presented theories of consumption and production at the macro
level without a microeconomic foundation. In recent times, however, this has
changed, and the differences between micro- and macroeconomics are less clear.
The behavioral economy is a direction in the economics field that draws on
insights from, among other things, the psychology field. It modifies the
standard assumptions in economic theory by assuming limited rationality and
motives other than narrow self-interest.
The subject line sprang from the realization that the assumptions that humans
are completely rational and only concerned with self-interest have given
economists trouble explaining a wide range of important economic phenomena.
A milestone in the history of behavioral economics was Daniel Kahneman and
Amos Tversky's development of prospect theory in 1979. They studied decision
making under uncertainty and found, firstly, that people evaluate outcomes
against a reference point and place more emphasis on losses than on gains from
that point of reference.
For example, they found that people prefer to be guaranteed $ 100 rather than
joining a lottery with a 50 percent chance of winning $ 200, while people who
are already given $ 200 prefer a lottery with a 50 percent chance of retaining
the $ 200 rather than to give back 100 kroner with security. Even though the
expected income is NOK 100 in both situations, people are therefore more willing
to take the risk of avoiding a possible loss.
They also found that people place a disproportionate emphasis on small
The prospectus theory can explain, among other things, why people consider
things they own higher than when the same things can be bought in the free
market. It can also explain why people are unwilling to sell their property at a
loss, whether it be shares or houses.
Limited rationality and multiple motives
A number of studies have also shown that people often have
poor self-control and systematically deviate from the plans they make for the
future. Both of these findings contrast with the standard assumption in economic
Lack of self-control seems to be a fundamental problem in many important
areas of application such
as consumption and savings, health, education and lifestyle.
The behavioral economy has also documented that people have motives other
than maximizing their narrowly defined benefits. In particular, literature has
established that moral considerations, such as the desire to be
treated fairly and the desire to treat others fairly, are important to many.
However, it has also been documented that people's perceptions of justice are
complex and differ between individuals in the same society and between
Important contributions in behavioral economics have also modified the
standard assumption that preferences are stable. Experimental studies have
documented that preferences depend on context and social identity. For example,
the consumption of sweets and fruits depends on their availability in the store.