A Psychological Approach to Economics
“Economics primarily deals with the economic aims and objectives of individuals as well as large groups. Economics can thus be called a branch of psychology. ”
Ever living being strives to fulfill an aim - whether consciously or unconsciously. This aim can be simple and pure survival or something dignified as spiritual pursuit. Human beings, who have a well-developed consciousness, see some meaning in their lives and try to achieve their personalized goals.An important goal of every human being is to achieve a good standard of living. A person strives for it and has many a time to be in antagonism with his fellow beings for its fulfillment. We can thus say that this world is the interplay of individual behavior and mass behavior.
Here is where economics comes into picture because it primarily deals with the economic aims and objectives of individuals as well as large groups. Economics can thus be called a branch of psychology.
The average economic player (person) has set for himself some goals and whole of his life is spent in their pursuit only. He commits mistakes, learns from them and is reassured that whatever he is doing is right and justified.
The assumption behind all this is that human beings are rational by nature and whatever they do has inbuilt rationality. But such an assumption cannot be trusted always because in business as well as in everyday life we see people taking decisions that can seldom be called rational.
For example, sometimes businessmen sacrifice their money and resources with a view to punish the free riders. The rational profit motive is not behind their action. Similarly, sometimes there is a sudden and mysterious change in the liking of average people that has not been predicted by economic theories at all.
Mostly such anomalies take place because people are not much concerned about their present but give increased importance to the future. So, an element of irrationality, surprise and unpredictability is bound to creep into human decisions and actions.
Another case, where human psychology is of vital significance, is the arena of customer choice and the methods employed to influence it. Simple and pure economic theories fail to give satisfactory results.
It’s only when the irrationality and unpredictability of human nature (as advocated by psychology) is taken into account that we are able to arrive at satisfactory results.
Author - DeeKay
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