Behavioral vs. Market Economics

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     Economists tend to abide by the structured laws of a free market when predicting outcomes of capitalism. However, the human inhabitants of our market economy are inherently irrational. This often causes a gap between prediction an outcome where there is left room for unpredictability. This dilemma is put into words as the difference between behavioral economics and market economics. 

    Market economics is filled with cause and effect situations within the study of scarce resources. Due to the inevitable scarcity of resources, laws of supply and demand oblige cordially. Equilibrium points and analytical graphs allow economists to predict outcomes based on determinant factors. Due to the strict abiding of economic laws, predictions often find flaws because they treat human subjects as if they are robots. 

    Behavioral economics entails the rash decision making of humans that often relies on preference, bias, and stubbornness. Besides these main factors, there is also the factor of sheer unpredictability in human action. Behavioral economics essentially comes down to a phycological study of human nature. To fight unpredictability, the surest measure is run experiments tracking to humans' decision making and action. The abrupt blockades that behavioral economics throws in front of a market economy cause a necessity for economics to be studied on a more personal level rather than purely academically. 

    Mixing two almost opposing sciences can tend to get ugly; however, it is necessary for contemporary economists to provide insight from both sides of the coin, especially when enacting policies that directly affect humans themselves. There is no completely correct direction to turn, as our economy is quite capitalist, and our inhabitants are as irrational as ever. With that being said, the best route to take is to incorporate ideas from both behavioral and market economics in order to make the most accurate predictions.

LLMs: Can Behavioral Science, Economics Shape Generative AI's Market? - The Good Men Project

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