Did a shiver go down your spine when you read the title of this post? For some reason, economics and economic thinking has gotten a bad reputation. Many people just hear the word economics and they have flashbacks to bad ECON101 courses, playing the stock market game in high school, or cramming the night before an exam to memorize how supply and demand graphs move around. For people who don’t understand the basic principles of economics, it seems like a series of abstract semi-math problems.
I’ve always found this to be a bit tragic - not just because I think economics is great, but because many people are very good economists in their day-to-day lives. Fundamentally, economics is about making decisions in a world of scarcity, which involves weighing the costs, benefits and risks of alternatives. If you watch a typical people, they tend to be good (not perfect) about making choices with their own scare resources.
So why does the average person get a chill down their spine when they see the word “economics”? Usually it starts a bad experience with a class, book, or an economist. Then, many people tell me that they are “bad” at economics. Yet, I would wager you could take many of these “bad economists” and put them in a situation where they weigh the costs, benefits and risks of alternatives and pick an alternative that works best for them, they will do well.
So what makes this difficult when we come to work? Besides the fact that the range of alternatives may be much greater within an organization (due to more resources), think about everything you need to understand in order to make a good economic decision:
- Benefits: In our own personal decisions, we know exactly what the value scale is — I prefer this over that. At work, we have to be well-connected to the vision and values of the organization to have a good grasp on what exactly the benefits are.
- Costs: Accounting costs are one thing and economic costs are another. When we make decisions in our personal lives, we only have to worry about our opportunity cost (and maybe the costs of a few others around us). At work, because there are so many people who may share in the costs of the decision (like when a team takes on a new project), there are many opportunity costs to consider.
- Risks: In our own decisions we can judge how much risk we’re willing to take on. At work, we have to align our risk appetite to that of the organization’s.
The good news is that economic thinking comes natural to many of us. The other side of the coin is that economic thinking at work requires us to be intentionally connected and knowledgeable, which can take time and effort.
What have you done in the past to learn more about economic thinking? What are some ways we can practice better economic thinking at work?