Social influences, culture, & information

‘Tastes and preferences’ is the phrase economists use to refer to everything we want in life. But most economic theories don’t actually pay much attention to where people’s tastes or preferences come from. Instead, economists generally start by accepting that people want what they want, and then studying how people get what they want.

Social norms are the unwritten (or sometimes written) rules of society that differ from culture to culture, and make up what’s seen as normal, acceptable, respectful behavior. Peer pressure, family traditions, local customs are behind a lot of the choices we make. Psychologists and sociologists think a lot about social norms, but they also guide a lot of our ‘economic’ decisions.

Perfect information is when we know everything we need to make the best choice. A lot times when economists build theories or models of the economy, they assume everyone has perfect information. But there are a lot of reasons why we might not have perfect, or even decent, information.

An ‘opportunity cost’ is the cost of all the things someone misses out on doing when they make a decision. When someone has to make a direct choice between things, and can only choose one option, this means they can’t choose any of the other things. The thing or things not chosen are the opportunity cost for that person.