What Economics Means to Me
by Daniel S. Hamermesh
Economics is the study of behavior in the face of scarcity. It examines how incentives-both monetary and non-monetary-affect what people do. It is a social science that has built up a structure of rigorous theoretical analysis and statistical methodology designed to interpret real-world phenomena.
Essential to this view is economic theory-the logical analysis of the behavior of individuals, firms and governments, and how they interact. Microeconomic theory is what distinguishes economics from the other social sciences; and this theoretical basis makes economics so powerful and useful. Theory by itself yields crucial insights into behavior; but without confronting the theory with data, economics becomes sterile. Just as important, the development of new economic theory is stimulated by solid new facts.
The second central aspect of economics is thus the creation of novel facts about observed behavior, based on publicly available or privately generated data describing the same economic agents on which the theory focuses. Throughout the process of examining behavior the central issues every researcher must face are: What is the question that is being asked, why is the topic worth considering, and what is the theoretical basis underlying the investigation? After these are answered, empirical economic research must also be convincing-the data must be of the highest quality, and the techniques used to analyze them must be adequate for the task.