If you've stumbled upon this blog, you're probably wondering what this is about, and more importantly, why it matters. This post is here to help clarify that.
My name is Rohan, and I love economics. The way people make decisions in general interests me, but what really captivates me is the relatively new branch of economics: behavioral economics. This discipline analyzes how humans (as flawed individuals, not as societies acting under the invisible hand) make choices in the absence of perfect information and flawed logic.
This sort of analysis is especially important in times of change, when it becomes impossible to have perfect information. Change is something that happens to everyone, and with changes comes changes in situations. One of the goals of behavioral economics, one of my greatest interests, and the focus of this blog, is to assess how people use their flawed logic to deal with these changes.
This topic has significant relevance and importance to our world. For example, a little while back, I read a story about Ben Bernanke, the Federal Reserve Chairman, announcing that the Fed would not be keeping the economy on life support forever. Of course, this move was a little surprising, and it was certainly a change from the previous situation, but the change in the markets was stunning. The domestic markets fell dramatically, and abroad, the markets were also alarmed. In particular, I remember reading about the value of the Indian rupee dropping by 20%. All this was based off one speech that talked about one change to the present situation.
Of course, it's an open question as to whether or not that change was justified, but the point is this: when people saw a change that, at least in the back of their minds, probably wasn't all that unexpected, they let their flawed logic take over and made decisions that, if viewed objectively, might be seen as irrational. This is a feature we all have in common. When we find ourselves realizing a situation has changed and we know less about it than we would like to, we start making irrational decisions.
This is an important concept in understanding how other people around us (and we ourselves) work, and understanding it can help us not only work with others, but also understand the fallacies in our own thinking. That's what I hope to get out of this blog. I hope you get a little something out of it with me.
