Economics as the science of choice
If you’re joining a business master’s program without studying economics before, you might have the wrong impression of economics. Studying economics offers much more than an understanding of money and financial systems. It transmits a way of thinking that helps people understand the world around them and strategize decision-making. Essentially it is the science of choice.
According to Dr. Jo, Senior Lecturer of Strategy and Policy and MBA Deputy Academic Director at NUS Business School: “We professional economists have a very firm belief that behind almost everything you are going through, whether it is about personal decision-making issues or business issues, there lies economic rationale behind almost everything.” (01:42)
Economics allows business students to analyze and understand a wide range of complex issues. From the allocation of resources, market behavior, and the impact of government policies. By studying economics, you can develop critical thinking skills and apply the science of choice to strategic decisions in your future career.
One of the key aspects of economics as a way of thinking is the concept of trade-offs. Every choice made by individuals or societies involves trade-offs and understanding them is essential for making informed decisions. A common saying in economics is, “There’s no such thing as a free lunch.” Every choice has a cost and understanding these costs, whether monetary, happiness, or time is an excellent life skill.
By breaking down the study of economics, we can see that its applications are vast and varied. It offers a framework to help you understand the world through decision-making.
The rational and irrational aspects of decision-making
Economics encompasses both rational and irrational aspects of decision-making. As a game theorist, Dr. Jo assumed that decision-makers are rational and always make the optimal decision when given sufficient information. However, an accidental encounter at a conference taught him about a new field of economic thinking.
“Behavioral economics assumes the total opposite kind of decision maker. The human side”, he explains. “We are just humans. Not machines or robots.” (03:41) Neither game theory nor behavioral economics is “correct”, however. Economic behavior is a complex interplay between rational and irrational elements, with both playing an important role in shaping outcomes.
So, why is it important to understand both the rational and irrational aspects of decision-making? By studying both, we can better understand why people make the choices they do, and how those choices impact the economy. This can help us make better decisions and predict future economic trends.
The real-world applications of economics
From businesses to governments, economic concepts play a crucial role in decision-making processes. The science of economics helps us understand how resources are allocated, prices are determined, and how to maximize profits and efficiency.
For instance, game theory is a subfield of economics where an actor’s decision critically depends on the actions of others. It has proven to be an indispensable tool for understanding international trade and free trade agreements, but also crosses over into war and biology. Game theory models provide insights into the behavior of firms and individuals in these situations, helping to shed light on how decisions made by one party can affect the outcome for all parties involved.
Game theory at home
Economic theory can be applied on a much more personal level, as is the case with parenting. By considering opportunity cost, understanding the power of incentives, and recognizing the limits of control, parents can create a positive and supportive environment for their children to thrive.
Opportunity cost refers to how parents spend their time and money to maximize returns later in their child’s life.
Incentives are more straightforward. How should parents incentivize their children to work toward certain goals such as a new toy?
The law of diminishing returns is the recognition that excessive control can actually lead to negative results, like rebellious behavior.
Similarly, by understanding that children are irrational by nature — shown through overreactions, tantrums, phobias, and accidents — parents can react in a calmer way and do more to de-escalate situations.
According to a study by The Insight Partners, the field of healthcare economics and outcomes research (HEOR) is set to see annual growth of 11.9% between 2020 and 2027. This area of study focuses on using economic principles to improve patient outcomes and reduce costs. By using the science of choice, healthcare managers can make data-driven decisions, ultimately boosting the quality of care for patients.
As an example, using machine learning, algorithms will soon diagnose illnesses and recommend treatments with no possibility of human error. Drawing on a worldwide database, it will be a product of the combined knowledge of all doctors and be able to spot patterns and links in a way that no single human can.
Economics as the science of choice
As we can see, economics is far from the boring, dry subject that its reputation has historically suggested. With the right guidance and contextualization of theory, it is an extremely engaging subject that students can take beyond the classroom. As Dr. Jo finishes, “I want them to find their own ideas regarding what aspects lie behind each of the challenges they may face in real life.” (01:33)
If you’d like to find out more about life and studies in a master’s program, you can contact current students and alumni directly on the MASTERGRADSCHOOLS Ambassadors page.