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Economics Applied to Business?

As an academic subject, economics does not have very much to do with business. Economics is a study of human behaviour, not business issues alone.

Written by johnleemk on 11:57:22 pm Feb 2, 2008.

Economics and business are usually thought of as two closely related fields. Economics seems something respectable to major in to parents obsessed with a practical or professional sort of degree because they imagine it will help their child should he ever decide to go into business.

But how much does economics actually have to do with business? How much does business actually have to do with economics? Does being a good economist translate to being a good businessperson, or vice-versa?

That does not appear to be the case. At the highest levels of the top corporations in the world, economics degree-holders do not overwhelmingly dominate the scene; neither do you find businesspeople amongst the winners of the Nobel Prize in Economics.

Economics is primarily an academic field; it is a study of the world that businesspeople — or to be more precise, all people — live in. The skills in economics do not necessarily easily translate over to skills in the business world. One hallmark of economics is that to simplify the analytical process, several aspects of the business world are actually distorted. (It does not seem likely that the typical manager prices goods according to their marginal cost, for example.)

It is actually probably a great distortion to describe economics and business as congruent. Economics is primarily the study of human behaviour in an analytical way; it tries to scientifically explain why we do the things that we do.

Someone who studies human behaviour does not suddenly have incredible predictive powers granted to him or her. An economist cannot predict what an individual person will do next; it is actually a given that economists cannot do more than predict general trends, and even so, they can only do this quite poorly.

An academic subject is of course very different from a professional subject; a law degree or medical degree endows one with more practical skills than an economics degree would.

Even though economics probably seems closer to business as a subject than computer science or law, it might not even confer that huge an advantage if you are interested in business. In the US, many investment banking and management consulting firms hire without significant regard to what your major was; general analytical skills, as opposed to specific knowledge of economics, are prized.

So why would I do a degree in economics? Because I am interested in the study of human behaviour — and because the knowledge of economics is applicable almost anywhere. Because I want to be able to analyse a situation from a rational and objective standpoint. It is also probably a safe choice when it comes to job opportunities — it may or may not be a helpful degree to have, but it certainly can't hurt.

Knowledge of economics is extremely helpful for anyone who wants to look at and understand the world around us. When it comes to business and entrepreneurship, however, you are probably better off with a degree in actual business.