The problem with assuming that economics and strategies will work properly is that people are assuming that economics follows rationality. The harsh reality is that it does not. Humans are the ones making the decisions, and there are numerous biological and psychological factors that can affect even the most efficient, rational decision making process. While medical science has been well aware of this problem and has years of experience in realizing that things like depression and anxiety will affect even the most logical of thinkers, economists have been slow to grasp that reality. This, according to some researchers, is because economic theories and models are based on how people ‘should’ behave, as opposed to how they actually would behave. They simply fail to realize that there are numerous factors that can have detrimental effect on one’s ability to be rational.
For example, higher testosterone levels are known for making men more aggressive on various levels. For men with higher levels of that hormone, it was found that they were more likely to take huge financial risks – the kind that could leave them bankrupt, with not a whole lot of return for their investments. In contrast, people who are experiencing depression might see a potentially good opportunity as being a little too dangerous to handle,
According to medical science, it isn’t just psychology and biology that play a role in the decisions that led the world into the current economic rut it’s in. Human beings are inevitably capable of learning from evidence or experience – its part of how the brain works. Behavior and decision-making are also linked to how people learn, but there is a catch. The older the experiences are, the less likely that the person will remember them, or what they managed to learn from those experience. This applies even to the population at large, as some experts point out.
Recent economic trends have shown the stock market being strong and moving upwards almost constantly, though there have been times when things tended to level out. This has given people the impression that the stock market is on an upward swing, and is not going to crash. However, an analysis of history will show that the reality is that the stock market can crash, and it usually does crash every few decades or so. This information, while it might be of critical importance for those in financial markets, tends to be forgotten when everything current says “things are looking up.”
Mark Walters is a part-time writer and a part-time researcher. He is currently self-studying various Far Eastern languages and is an avid fiction reader. He is currently writing articles oriented towards consumers of pharmaceutical products. http://www.internetpharmacy.bz/
