We are all economists
The term ‘economics’ tends to incite a lot of passion. For many people it typifies a cold, emotionless perspective on life that just looks at money. It represents the cynical world view of those who, as Oscar Wilde said, “know the price of everything and the value of nothing”.
There are undoubtedly people — probably even economists — who do fit that description. But the idea that economics is all about bankers and big business, about commerce and making profits, is not just undeserved. It is also inaccurate. Economics is in the first place a way of looking at human behaviour, to understand it and to explain it.
Behavioural Economics has been playing a big part in stressing the human dimension in the dismal science. Daniel Kahneman, Richard Thaler, Cass Sunstein and Dan Ariely have been doggedly chipping away at the concept of the homo economicus. (It is interesting to note that only one of these fine gentlemen is actually an economist.) But you would be wrong to think that this is a totally new development. The father of modern economics, Adam Smith himself, was well aware of human quirkiness, say Nava Ashraf, Colin Camerer and George Loewenstein. In a paper with the striking title, “Adam Smith, Behavioral Economist”, they show how he wrote about much of what behavioural scientists have more recently been studying in detail.
So Wikipedia is pretty much on the ball when it describes as “[p]erhaps the most commonly accepted definition of the subject” this quote from the economist Lionel Robbins:
“Economics is a science which studies human behaviour as a relationship between ends and scarce means which have alternative uses”.
What comes immediately to mind when talking about scarce means is, of course, money. You can use each pound, dollar or euro only once. And if — like most people — you only have a limited supply of them, you have to choose where you spend it, whether you’re an individual, a…