Cutting out the middleman and dealing direct with the source yields faster delivery, lower prices and the same or better quality product. Just like if one bought bank or personal checks direct from the manufacturer, you get the better deal. Economic models work the same way.
Those studying finance economics really felt like they dropped the ball when the financial crisis hit in 2007. They had been so good at helping financial institutions and investors maximize their profits and find new ways to capitalize on assets. They plugged in numbers to predict where the market would go and what would happen. Their bank checks and credit rating score math seemed airtight, so they thought.
When the housing boom started to slow and home values started dipping slightly, behavioral economics experts thought it was a logical progression for the over-inflated market to bubble and pop. One thing no one saw coming was the crumpling of so many giant bank and financial institutions over just a few months of time.
One of the criticisms of finance economics and macro economics theories is that it never considers how the inner-workings of bank and financial institutions can impact the larger economy. "That's the view of microeconomics theorists," they scoff. In turn, micro-economists are looking at how financial institution decisions affect consumer spending and behavior, rather than scaling up.
Behavioral economists, on the other hand, take a more psychological approach to finance. They examine how economic decisions by borrowers, consumers and financial institutions affect market prices, returns, values and allocation of resources. Market trends, bubbles, crashes, socioeconomic and market trends, prospect theory; these are all terms used in that discipline, which tends to consider more microeconomics theories.
"We don't realize how much of our lives is absolutely random," said top market behavioral economist Robert Shiller of Yale. In the nineties, he had warned, "We are in the biggest real-estate boom we've ever seen. Something is going to happen to end this."
Indeed his predictions came true and brought many respected economists out of the haze. Macro, micro, behavioral and finance economics all must work together, combining theories and testing what forecasters are most relevant to the global marketplace. If we've learned anything from this current crisis, at least it's that.
The simple answer is to let the markets decide allowing market forces to self-control. Adam Smith's model of pure capitalism works. However, what government or politician do you know who can keep their hands off?
Those studying finance economics really felt like they dropped the ball when the financial crisis hit in 2007. They had been so good at helping financial institutions and investors maximize their profits and find new ways to capitalize on assets. They plugged in numbers to predict where the market would go and what would happen. Their bank checks and credit rating score math seemed airtight, so they thought.
When the housing boom started to slow and home values started dipping slightly, behavioral economics experts thought it was a logical progression for the over-inflated market to bubble and pop. One thing no one saw coming was the crumpling of so many giant bank and financial institutions over just a few months of time.
One of the criticisms of finance economics and macro economics theories is that it never considers how the inner-workings of bank and financial institutions can impact the larger economy. "That's the view of microeconomics theorists," they scoff. In turn, micro-economists are looking at how financial institution decisions affect consumer spending and behavior, rather than scaling up.
Behavioral economists, on the other hand, take a more psychological approach to finance. They examine how economic decisions by borrowers, consumers and financial institutions affect market prices, returns, values and allocation of resources. Market trends, bubbles, crashes, socioeconomic and market trends, prospect theory; these are all terms used in that discipline, which tends to consider more microeconomics theories.
"We don't realize how much of our lives is absolutely random," said top market behavioral economist Robert Shiller of Yale. In the nineties, he had warned, "We are in the biggest real-estate boom we've ever seen. Something is going to happen to end this."
Indeed his predictions came true and brought many respected economists out of the haze. Macro, micro, behavioral and finance economics all must work together, combining theories and testing what forecasters are most relevant to the global marketplace. If we've learned anything from this current crisis, at least it's that.
The simple answer is to let the markets decide allowing market forces to self-control. Adam Smith's model of pure capitalism works. However, what government or politician do you know who can keep their hands off?
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