I pride myself on being an intelligent and critical-thinking individual. And for what I may lack in common sense, I make up for as an avid autodidact (as my unnecessarily complex vernacular should well point out).
I’m book smart; I like to read. I may read slowly, but it is a proven fact that those who take on average a longer time to read one page have a higher information retention rate.
My academic career has been littered with A’s for Awards, Ambition, and Academic excellence, and I have successfully completed many upper-level post-secondary courses that grappled with ambiguous topics like ethics, subjectivity, and relativism.
All of this, and I couldn’t wrap my pretty little head around the basic concepts learned in a level-100 Introduction to Microeconomics course.
So I dropped it.
I was told I’d have no problem: That when demand is high and supply is low, prices rise. It’s logical, it’s straight-forward. Apart from supply and demand, and the basics of elasticity, it is also completely foreign to me.
There were other reasons for dropping this course: I had four others on the go, as well as a part-time job, volunteer work, and numerous weekly meetings. But I’d often wondered why I found it so challenging to understand such basic economic principles when I’d previously managed to work my way through much more complicated subjects.
Economics, as I recall, is in part the study of human behaviour as it relates to matters like the consumption of goods and services. Economics is also founded on the rationale that people will consistently act in their own best interest, which financially translates into what will save one the most money, or earn one the most money.
This second point, as a general rule, is probably right.
But I also think it’s wrong.
What was missing from the equations – and what the missing link was to my understanding – was the variable for human nature, that encompasses more aspects of our humanity than our tendency to pursue self-interests.
The truth is that people do not always act rationally. While we have the ability to think rationally, our judgements can not only be influenced by our emotions, but may be solely based on emotion. And when I use the term emotion, I extend that to include feelings of pride, aggression, entitlement, retribution, of what is just, of what is fair. It includes what we believe and feel and want, and what we want or don’t want for others.
There was a study done where a person stopped two people on the street. He offered the first person $50, and told that person they could divide it however they wished between the two of them, but that the second person was to decide whether they both kept the money, or whether the offer was rejected.
For the first person, the “nice” thing to do, or the “fair” thing to do, would be to divide the money 50-50, knowing the second person would most likely accept the offer, and they would both walk away $25 richer.
Now for the second person, the economically “rational” thing to do would be to accept any offer that earns them money. After all, they have no control over the divying-up, and regardless of what they get, it’s free money. This means that, again, “rationally,” if the first person split the cash $30-$20, the second person should take it. They should also take it if it’s divided $49-$1.
However, the study pointed out that there comes a point when some people decide that their pride is worth more than what is being offered and, out of spite for the other “greedier” person, reject the financial offer for the both of them. (I know that if I was offered a dollar while my counterpart tried to take $49, I would, out of principle (anger, pride, justice) screw him over.)
And thus, I would argue that like the idea behind supply and demand is to find an equilibrium between the two, the key to figuring out how to get to that equilibrium rests, to a certain extent, of finding that line where our emotions and feelings (real or believed) overtake our rational thinking.
Some people act in the interest of the greater good (a form of self-interest assuming you include yourself in the greater good), while others are driven by the bottom line. We have different ways of thinking logically, different criteria for what makes up a rational or irrational decision, different views on whether it is justice or fairness or equality or hard work that should prevail at the end of the day. It’s complicated enough on a person-to-person scale, let alone incorporating governments, politics, nationalism, patriotism, and history into the mix.
The point I am trying to make is this: While the structures and general rules microeconomics would have taught me are generally quite accurate, if all of its principles can get thrown to the wind because one person pissed another person off, then I would rather spend my time studying human nature.