The Economics of Reasoning: How to think as a smarter Human Being


Illustration by: Lukman Yusuf

In a world where decision-making can often resemble a game of chance, understanding the theory of economics offer a beacon of rationality. whether it’s the blunt facts of Milton Friedman or the wittiness of Adam Smith, the beauty of economics lies in its versatile applicability.

John Maynard Keynes described the theory of economics as a method rather than a doctrine, an apparatus of the mind, he said, a technique of thinking which helps its possessor to draw correct conclusions. While his views are interesting, they mean absolutely nothing if humans do not perceive them as such in reality.

Economics is not just another subject or body of knowledge; it is the glaringly obvious happenings of our daily lives. If what scholars believe is true – that economics is the study of how societies allocate scarce resources – it is pertinent that we hold in high esteem the fact that individuals like you and I make up society. As Mahatma Gandhi rightly described, “a man is a product of his thoughts.” If the actions of human beings really do have any impact on the world we live in today, it will only be rational that human reasoning is positively maximized. Just as our wants are unlimited, the potentials of our minds are unlimited. If our thoughts are not effectively and efficiently allocated, as advised by economists, this time in the context of human reasoning, the world will slowly slide into chaos as our opinions skew towards what favours us as individuals, imminently leading to greed and selfishness.

The fact that human beings are rational and respond to incentives is just one aspect of human nature. Nobody wants to be cheated, and everyone wants to take advantage of opportunities that present themselves. This is why we experience increasing negativity in the world today, in the form of Violent disagreements, envy, selfishness & greed, and hatred amongst other ugly circumstances.

The Economics of Disagreements 

With respect to individuality, we argue amongst ourselves because we have conflicting opinions, which is totally normal. Human beings think differently as a result of their backgrounds, environmental and social influence, and perspective. Understanding how to think inclusively as an individual can help optimize your reasoning and broaden your considerations.

Have you realized that most economic systems, irrespective of their ideologies, advocate for the equitable distribution of resources? The capitalists believe that private individuals should be allowed to own and control factors of production. The socialist believes that economic activities should be controlled by the central government for the benefit of the masses, while communism advocates for a classless society in which all property and wealth are communally owned. Ceteris paribus, all of these ideologies, and that of any other economic system, distinctly advocate for inclusiveness.

This should also apply to our reasoning. Whenever we argue or discuss with people, we need to first distribute our reasoning and thoughts equitably by thinking in the different shoes of the individuals concerned. What impact would your actions or opinions have on them? Are you being fair with your decisions? Will understanding their situation help you explain your opinions better? As I said earlier, the reason we disagree with ourselves is that we have conflicting opinions, in other words, we suffer from an unequal distribution of reasoning and thoughts. The key to understanding one another is through effective and efficient allocation of thoughts and considerations. Nevertheless, we do not expect this to happen on the scale of perfection, as no economic system has perfectly solved the problem of inefficiency in allocation.

The Economics of Envy 

Envy is simply a feeling of discontent or resentful longing aroused by someone else’s possessions, qualities, or luck. I would like to approach this issue by looking at the concepts of absolute cost advantage and comparative cost advantage. The theory of absolute cost advantage refers to a business’s ability to produce and sell more of a good or service than its competitors using the same amount of resources. Comparative advantage is an economy’s ability to produce a particular good or service at a lower opportunity cost than its trading partners.

There are various reasons why people envy each other. Envy may arise when a physically disabled person, for instance, sees an able-bodied person doing something they cannot do. It may also be because someone who is similar to you has better opportunities than you do. Regardless of the reasons, knowing that each individual has a unique skill or trait that they can leverage for their own advantage can help you overcome envy. It will also help if you understand the two concepts mentioned above.

It is not uncommon for resources (skills and opportunities) to be inefficiently allocated, which is why we need each other. Economists recommend that to solve resource allocation issues, countries should specialize in what they have an absolute or comparative advantage in. The same applies to you as an individual: find a niche that matches your abilities and focus on it. 

The economics of Selfishness and Greed

Smith wrote in his book, “Theory of Moral Sentiments,” “How selfish soever man may be supposed, there are evidently some principles in his nature which interest him in the fortune of others and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it.” Contrary to the popular belief that human beings are inherently selfish, Smith believed that man has some inherent goodness. In my opinion, selfishness might just be a consequence or effect of scarcity of supply, whether in the short run or long run. Although there are many ideas or opinions on how scarcity can be addressed in different economic systems, the reality remains that scarcity cannot be solved. This is because the cause and solution of scarcity itself (resources) overlap. Insufficient resources cause scarcity, and sufficient resources solve scarcity. How, then, can a human overcome their greed and selfishness? It is by coming to terms with the reality that all of their needs and wants cannot be met and allowing their better nature to prevail. Marina Bianchi (2002) wrote in a review journal, “Since wants are considered to be insatiable, striving for them becomes an unending process, and society finds itself in a perpetual condition of scarcity’. That is to say that selfishness and greed cause scarcity, which in turn causes more selfishness and greed.

The economics of Hatred

According to research published by the Department of Psychology at the University of Cadiz in Spain, hatred is based on the perception of others but also has a strong relationship with ourselves, including our personal history and its effects on our personality, feelings, ideas, beliefs, and especially our identity. Certain adversities in our lives can trigger and intensify hatred, such as jealousy, failure, guilt, and so on. Perception in the context of this analysis can be considered the independent variable of hatred; at the same time, it is also dependent on our personal history and adversity. In economics, perception and expectation are particularly important when it comes to how you approach decision-making for the future. If your personal perceptions and resulting decisions are misaligned with upcoming economic realities, your business will not be in the best position to succeed. Max Planck, the Nobel Prize winner for Physics in 1918 and seen as the founder of quantum theory, once said, “When you change the way you look at things, the things you look at change.” The psychologist and winner of the Nobel Prize for Economic Science in 2002, Daniel Kahneman, explains how we systematically suffer from cognitive biases that influence both our perception of reality and the decisions we make. In economics, bias is seen as an irrational assumption or belief that affects the ability to make a decision based on facts and evidence. As rational individuals, it is important to consider both the emotional and cognitive biases influencing your perception before validating your reasons to hate.

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