How Information Affects Economics


Aug 2, 2020
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Information is economics and vice-versa. You can't have economics if you don't have information. I want you to think about this definition for a moment:

Economics is the study of how humans make decisions in the face of scarcity.

Think about how economics affects your everyday life. Would it be economical for you to purchase a huge bus in which to drive to a nearby market one time or would you be better off if you bought nothing? Perhaps walking would be best. Which route should you take to that market? The one that zigzags all over town or the one that simply cuts through a small piece of property? When should be go to the market? During a torrential downpour of rain or after?

These all seem like easy questions to answer. First, of course you wouldn't go out to by a bus just to go to the market once. That's just silly and a waste of time and resources. Next, of course you wouldn't zigzag all through town to get to the market when there's a shorter route. That's wasting precious time. And finally, of course you would wait until after the rain stopped before you went to the market, lest you get wet. Each of those decisions is fairly obvious. Or are they? What if you had to bring 35 people to the market with you and you were being paid $1 million to do so as fast as you could? Then, perhaps a bus would be a better option. Also, what if you had other errands to run, besides going to the market, so zigzagging through town would actually be more efficient than skipping those errands altogether? And finally, what if the man of your dreams asked you to meet him at 3pm sharp, no matter what, while you're walking to the market? What if that was the time it was raining? Would you still do it? Your entire life may hinge on this decision.

As you can see, the more information you have, the better the decisions you can make. Economics is all about making the best possible decision from your available information. Whether or not something is economical is based off that information. A passenger plane flew the shortest possible route across the ocean from the U.S. to England. Was that short route economical? It would seem so. What if there was only one person aboard the plane? Still economical? I'm sure you get the point. Without data, you're lost at sea. This is why so much of economics is based on the gathering of data. If you think about it, if there was a way to gather all the information in the world, you'd likely be able to make what's referred to as a perfect decision. After all, there would be no unknowns. The truth of the matter is though, rarely do we have all necessary information. And because of this, we called our the information we do have, imperfect. Despite this, we still go ahead and make decisions anyway. We simply adjust as we go and gather more data.

I've been thinking a lot lately about how the internet and social media have changed the world. I'm not sure if it's for the better or worse, but that's irrelevant. What I'm referring to here is the impact the internet has had on economics, the economy, and whether or not we deem something economical in our own lives. Today, we've got so much more information with which to make decisions than we've ever had. Think about something as mundane as scheduling a baseball game. Years ago, each game would be scheduled at the beginning of the season. Let's say they were set for Wednesday evenings at 6pm. If everything went without a hitch, the weekly games would take place on time. But what if something went wrong and a game needed to be delayed? Either no one would know about that and they'd show up at the regularly scheduled time or someone would have to call each player, which could take all day, as you can well imagine. Today, all that someone need do is make a quick post on the team Facebook page telling everyone else that the game needs to be delayed. That's it. Everyone would know in an instant. Examples like this are endless, but suffice to say, the internet and social media have turned the world of economics in its head.

I'll be doing a lot of writing in this forum that focuses on how the dissemination of information impacts economic decision making. How does the processing of information have an impact? How does understanding human behavior affect economics and the markets as a whole? And how does the speed of gathering this information affect these things as well? If you've got anything to add or if you're an economics enthusiast as I am, I welcome you to chime in down below.
How Information Affects Economics was posted on 08-19-2020 by CaptainDan in the Economics Forum forum.
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