Based on these articles, what's your opinion of behavioral economics? Do you think behavioral economics represents a return to Veblen's ideas?
In many respects it can be agreed that behavioral economics has much in common with Veblen's theories. Behavioral economists agree with Veblen that in most cases humans act illogically, because they are driven by instincts rather than by pure reason.
Thorstein Veblen stated that economic processes are mainly affected by evolution, social relations, political situation and other factors which are more global than circulation of money and accumulation of wealth. His ideas of social relations domination in economics have much in common with ideas of behavioral economists, who state that economy is much affected by psychological factor, or behavior of social groups.
It's proved by a number of applied researches held today. For example people who got data about utility bills of their neighbors become more economic, saving electricity and water. In many respects after people are provided information about economies of their neighbors, they plan budget in different way, trying to save more. it's explained by psychology of people, by their desire "not be worse than others," as in many respects income of them and their neighbors are alike. Also findings of behavioral psychologists allowed better exploration of market relations and factors which influence demand and changing character of stock market.
4. (a) to what extent has economics benefited from the application of mathematical methods in the analysis of economic issues? (Hint: See chapter 11 of the ordinary business of life by Roger Backhouse.)
Use of mathematical methods in economics allows solving a number of complicated and problems. Mathematics is widely used in such fields of finance as planning, decision making, forecasting and risk evaluation. It can be said that mathematics is the main tool of economics as it allows presenting data and making certain kind of conclusion from any economic situation. In a general scope economics knowledge can not be applied to any business related issue without application of mathematics.
Mathematical methods of decision making and game theory applications allow to evaluate risks of complex economic systems, build multi-factor models which prevent economic system from different sorts of risks. Such methods are used by government agencies in order to create balanced budgets, reduce risks of inflation, prices growth, unemployment, etc.
Methods of economical planning are widely used for forecasting of future sales on the base of data collected from the past. Methods of planning which use applied linear programming allow building economical models which can predict future behavior of prices, efficiency of industrial production, etc.
Among the most important mathematics application to economics is application of statistical methods, which play fundamental role in economics, as they allow organizing economic data for its future utilization.
We can state that without using mathematical methods for solving economic issues, we would base our solutions on pure intuition and guesses rather than on rational and logical observations.
A b) Comment on Paul Krugman's article "Two Cheers for Formalism"...
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