Behavioral Science And Technological Advances Bring Social Psychology And Economics Closer Together
Created: Tuesday, 07 August 2012 06:51
The issue now is not how to use theory to fill in the gaps for economic data that’s either too expensive or unavailable; it’s how to make sense of the sprawling overload of information recorded daily by our computers.
Computures automatically monitor our daily activities. They record everything from our work habits—including when we take a break or procrastinate—to outlining our personal and professional networks. And it’s not that economic theories are no longer relevant; it's that all this new data is changing them.
Because of this, we can better trace the systematic flaws in our reasoning through behavioral science and social psychology. Interest in behavioral science as applied to finance and other fields has been growing for years. Now, the growth in behavioral explanations enable economists to identify groups of individuals as representative agents of typical behavior.
Computers can record the behaviors of millions of people so the sample size upon which assumptions are made is vastly larger than before. And as separate as social sciences and behavioral sciences have traditionally been, they are now converging through economic analysis.
Technology has opened the opportunity to study economics in ways that have never before been available. The happy result is that we now have economic research that is much more grounded in reality.
What this means—hopefully—is that we may have a better chance to get a grip on what’s really happening
in the economy so that we can either better prepare for or completely avoid the next crisis.
It also means that we will have a more robust set of data from which to understand the decision making process our clients employ. It leads us to the fact that behavior alone is not a sufficient base from which to analyse decision making.
The impact of larger societal forces is also a valid and critical ingredient to the analysis. Hopefully, this is a fact that will increasingly become recognized as this new economic model unfolds.
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