Economics: purposeful action & preferences

Once again we can see that economics is a social science.

In economy, we focus on purposeful action. We believe that only individuals can act. Now, why is that – a historian might write “In 1941 Japan attacked the United States.” Strictly speaking, this is nonsense. “Japan” isn’t an individual and therefore it can’t take any purposeful actions, such as bombing Pearl Harbor. Individual Japans pilots flew planes and attacked ships belonging to the U.S. Navy. This might sound silly, as we understand what the historian meant, but I am just trying to explain how you should see things in economics.

Another important thing to notice is that in economics we have to understand people’s preferences to understand exchange and we have to understand that each individual has his own preferences. By these preferences we choose our next steps. We take purposeful action based on our preferences. Example: “Bill drank soda because he was thirsty.” Bill was thirsty and had two choices – stay thirsty or drink soda. His preference was to drink soda in order to stop his thirst, so he purposefully drank it.

Can purposeful action be based on a faulty belief? Yes. In 1800s, doctors put leeches on some of their patients, believing it will help them. This purposeful action was based upon a faulty belief.

Can we measure our preferences? No. We can rank them, but we cannot measure them. For example, Sally can rank her best friends from her most favorite to her least favorite. But she won’t say that Joe is a better friend than Henry by 13%. Same logic can be applied in economics.

This is why economists say that only individuals can act and why we shouldn’t measure people’s preferences in form of “social utilities” or in other forms of measurement.

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