[ExI] Psychology of markets explanations

[Stathis Papaioannou]

2009/5/30  <dan_ust at yahoo.com>:

>> I wasn't referring to anything so crude as "think
>> positive". In the
>> most basic terms, economics reduces to physical resources
>> and human psychology.
>
> First, how does this relate to the specific example: how psychology "contributes to the economic cycle."  And how it would help to change "psychology" (or, more likely, how people think and feel) would ameliorate the current crisis or economic cycles in general.

Psychology gives rise to the economic cycle, since the economic cycle
is due to human behaviour. Changing psychology would change human
behaviour and therefore would change the economy. For example, if
everyone believed the world would end in a year that would make a
drastic economic difference, even though nothing materially has
changed. But this is not to say that altering human psychology to
change the economy is feasible or desirable.

> Second, I believe economic laws superseded psychology in a certain way: as long as you have agents that act -- i.e., that have purposive behavior -- economic laws apply.  Granted, and no Austrian would argue against this, psychology might explain why these agents have the particular purposes they do -- e.g., why status symbols become important or why people feel more pain from losses than they appear to feel pleasure from gains.*  But none of this would controvene economic laws.  E.g., the Law of Supply and Demand would still apply, regardless of why people prefer a particular good or service.  (It might better to see economic or praxeological laws as akin to mathematics.  This is not to say they don't apply to the real world, but rather that they apply regardless of the particular material we're dealing with.)

The law of supply and demand is an emergent phenomenon supervening on
social psychology. The supply-demand curve would be affected if people
prefer to buy more of a product if it is more expensive, for example.


-- 
Stathis Papaioannou