In this section, Professor David Autor describes two common misconceptions about economics that students tend to bring to the course.
Economics is Just about Money
Students often come to the course with misconceptions about economics. Many of them, for instance, think economics is just about money. That’s not true. It’s about decision-making—how people make decisions and how individual decisions aggregate up to collective outcomes that are often very different from what people are individually seeking. In fact, one of the classic ironies of economics is that every firm is profit maximizing. In equilibrium, in a competitive economy, no firm makes profits. They all break even. So the fact that everyone is behaving greedily doesn’t mean that the social outcome is undesirable. What that individual greed, collectively, under the right circumstances, leads to is a situation where all the gains from trade are exhausted. In other words, if there’s an opportunity for two people to make each other better off, they will take it.
So, economics is about decision-making, but so are many other fields, such as psychology and sociology. The key difference is that economics has a notion that is not found in other social sciences, which is that individual choices have to lead to a collective outcome. And the collective equilibrium may be totally different from what anyone intends.
Economics is a Blackboard Exercise
The other misconception students tend to bring to the course is that economics comprises assumptions that are mainly blackboard exercises and don’t have any practical relevance. Historically, economics has been taught in a way that perpetuates this misconception. But it’s not true of contemporary empirical economics. We do work that produces much rigorous evidence and can make claims with a high degree of certainly. I want students to see that economics is relevant to incredibly consequential social policy and to household and individual-level decisions. In this sense, an understanding of economics is essential not just for researchers, but also for voters and consumers of public media.