You may have heard that economics is the study of choices and how those choices affect others. This study spans from which groundwater clean-up policy the White House should enact, how Walmart should price their goods, to how you decide to get to school, and everything in between. Economists believe that people do the best they can given the information that they have. We all have preferences, things we like and don’t like, and face costs. Given these two pieces of information, economists can help make optimal decisions. What economists don’t do is comment on the validity or quality of what you like. This process of doing the best you can given the information that you have is called optimization, and it is one of the core principles of economics. In this lesson, Professor John A. List introduces the definition of economics and this core principle of economics, optimization. The principle of optimization says that people do the best they can given the information they have, but what about when it seems like people are being irrational?
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