Differences Between Economics And Psychology

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When comparing both economics and psychology, it is true that both of the social sciences look at the behaviour of individuals and how they react to situations where they are faced to make a decision. However the way both of the two go about it is very different to a small extent. Economics defines rationality as consistent choices made by people to maximise their self interest and utility. It also assumes that people are able to make choices whilst processing all the information without hindering other operations that our brain does. Whereas psychology focuses on “learnt behaviours” that are unique to the individual when trying to be rational by making so called rational choices. The psychology perception of rationality (or the lack of it) …show more content…
This is highlighted by a quote by Edgeworth (1881 p.16), “the first principle of Economics is that every agent is actuated only by self-interest”. This shows that the theory of self interest and utility maximisation is central to being rational to economists.. However we have to question this notion of individuals always depending on the utility function, if we were to take this assumption literally, we would find out that the economic definition of rationality is not completely true. For example, the first assumption of utility maximisation is that a person cannot be manipulated, with the person only picking on the basis of maximising …show more content…
Economics views rationality as when an individual acts in their self interest and maximises their utility, where every individual is expected to not become manipulated and where they are able to clearly state their preferences without hesitation. Psychology on the other hand views rationality as being much more human like compared to the robust set of assumptions made by many economists. Psychologists tell us that people can become manipulated through the framing effect when referencing the two or more alternatives at hand. Furthermore, bounded rationality tells us that rather than choosing the choice which will be at their optimal utility gain, they will pick a choice that is just good enough, thus, they will be satisficing due to various reasons (saving time for example). When looking at both of the perspectives, the psychology definition is far more convincing due to the economic definition laying out assumptions (when taken literally) do not occur every time. We can not set out our preferences without hesitation for every question posed to us, furthermore an individual is not able to process all alternatives without the cost of time and brainpower as we are limited in this department. However the economic assumption of rationality is key for us to understand what the best option is and for

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