Foundations of Economics: The Law of Scarcity

Foundations of Economics: The Law of Scarcity Most of the basic laws of economics focus on ways to efficiently build wealth and prosperity over time. ¬†But there are important financial concepts that turn this problem in the other direction, instead choosing to focus on the effects that a lack of available resources can have on … Continue reading Foundations of Economics: The Law of Scarcity

Consumer Economics: What is the Market Absorption Rate?

Consumer Economics: What is the Market Absorption Rate? In school, some students avoid economics because they might feel as though the lessons have little-or-no application in the real world. ¬†Unfortunately, this is usually not actually the case. Economics concepts play many roles in our daily lives – and if we can understand how these concepts … Continue reading Consumer Economics: What is the Market Absorption Rate?

Efficiency and Improvement Theories

Economics is a study of choices and how you make those choices can be defined. Be it to maximize utility, to increase profit, or to improve a situation. Here are some: 1) Pareto Efficiency: a state where it is not possible to make one better without worsening another. 2) Pareto Improvement: improvement to noe without … Continue reading Efficiency and Improvement Theories

Presumptions of Self-control theories

Here are some thoughts on presumption of self-control theories. They are based on the presumption that we have bounded willpower and that there needs to be a course of action to which keeps in the individual on track to meeting goals and expectations. Thus they derive incentive and constraints as solutions. Constrains, or rules, are … Continue reading Presumptions of Self-control theories

Social dilemmas in Behavior Economics

Social dilemmas are simple situations between a pair of people, to a group of people, that involve making decisions that will ultimately affect their well being and the well-being of the overall group. The ‘players’ in the social dilemma have the choice to cooperate to which is known as taking the best interest for the … Continue reading Social dilemmas in Behavior Economics

Thaler’s Stylized Facts on Horsetrack Betting

Back to some behavioral economics. Thaler cites three stylized facts about horsetrack betting, they are as follows: 1. Most betters bring an amount of money that represents a small amount of their overall wealth. In terms of mental accounting, this money may represent the theory that money is non-fungible. Because they are not brining their … Continue reading Thaler’s Stylized Facts on Horsetrack Betting

Mental accounting – 3 main components to the theory

In mental accounting there are three main components to this theory. The three of them are as follows and may affect the individuals preferences as follows: Value Function This is a function that represents gains and looses with respect to some reference point. In rational behavior theory, it would predict that an individual gains some … Continue reading Mental accounting – 3 main components to the theory

Hyperbolic Discounting Explained

Hyperbolic discounting refers to the preference people have to accept smaller payoffs sooner rather than larger payoffs in the future. This means that in terms of an individual saving for retirement, the individual is much more inclined typically to spend the money now rather than have a larger amount later to spend, say on retirement. … Continue reading Hyperbolic Discounting Explained