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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 on.
Macroeconomics thus tries to provide an overall overview of society’s economy by means of a small number of aggregate economic sizes, as opposed to microeconomics.
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 probabilities.
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 theory.
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 communities.
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.
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Top 10 Economics in the United States
|1||Harvard University||Cambridge, MA|
|2||Massachusetts Institute of Technology||Cambridge, MA|
|3||Princeton University||Princeton, NJ|
|4||University of Chicago||Chicago, IL|
|5||Stanford University||Stanford, CA|
|6||University of California–Berkeley||Berkeley, CA|
|7||Yale University||New Haven, CT|
|8||Northwestern University||Evanston, IL|
|9||University of Pennsylvania||Philadelphia, PA|
|10||Columbia University||New York, NY|