Principles of Economics/Cautions

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Karl Marx, who wrote The Communist Manifesto, stated that history is the sum of economic factors. Largely, this is the case. As such, economics is a much more controversial field than most people think. This is because economics effects everyone equally, personally, and intimately. Economics is the only science which touches us in a way we can relate to every day. There are a few problems which people may fall victim to when assessing economics. These include biases, "loaded terminology", and jargon. A few are more serious and harder to spot.

Sunken Costs[edit]

Once an irreversible decision has been made, further decisions should be based on the merit of whether or not those marginal decisions would improve one's overall happiness, and not take into consideration any costs or benefits incurred by said irreversible decision.

For example, if you bought tickets to a game and then realized that you would rather attend a movie at the same time, your irreversible decision is buying a ticket, and your next decision of whether to attend the game should be based on whether you find would make you more happy. If you find that attending a movie is better for you, then you should attend that movie; the cost of the ticket should not somehow goad you into attending the game which you would otherwise not attend.

Post Hoc fallacy[edit]

The post hoc ergo propter hoc fallacy is the most common fallacy and the easiest to fall victim to. In this fallacy, people assume that because Event A precedes Event B, Event A is necessarily the cause of Event B. However, this is easily disproven. If you go to the beach and it rains, you cannot assume that it rains because you go the beach.

Correlation[edit]

Correlation does not prove causation. Often studies will attempt to prove any number of things by showing that when people did something, something else happened to them. However, this proves nothing. For instance, you cannot assume that because 90% of people who took the SAT applied to college that taking the SAT caused people to attend college. More likely, it is the other way around.

Fallacy of composition[edit]

The fallacy of composition shows that just because something is true for an individual unit, it does not mean that it is true for the aggregate. For example, if you leave a sporting event a few minutes early because there will be traffic at the end, you cannot assume that everyone should leave a few minutes early. This will simply cause traffic a few minutes earlier. More often this fallacy involves applying microeconomic principles on the macroeconomic scale.