The economy

[MaC]

What's more important-understanding the statistics behind it, or the mentality of the people?  (in other words, if I've phrased it poorly)

[Dr. Cynic]

Psychologically. People should always come first. I believe you can actually tell alot about a person from how they answer this question, Milk.

[Gabu]

Anything that involves unknown human behavior can only be modelled so well scientifically (and therefore mathematically), because for it to be at all manageable, one has to make several assumptions about what nature will be behind the behavior.  It works pretty well as long as the assumptions all hold, but the moment they don't, it all gets thrown out the window.

That said, economic theory is nonetheless an important field.  I don't really know which option to vote for.

[Emsworth]

The methods of natural science cannot be applied to economics. One can study physics or chemistry by conducting experiments, but this approach fails when it comes to economics. One cannot isolate an economic factor or an economic variable. Thus, one can never be certain as to which factor ultimately led to a given result from mere statistics.

Instead, economics should be studied by considering the psychology underlying human action. First, we start with a few basic axioms relating to human action; from these axioms, we can derive economic theory, just as we might deduce theorems in geometry from Euclid's postulates. These "axioms" are not universally valid statements, but they are not assumptions either: rather, they are generally applicable statements that hold true on the macro level.

[John Dibble]

You need both, but the economy is largely psychological. Economics is about decision making. Those decisions may be rational or irrational. Some may be based on math, others on emotion.

[Inverted Things]

You need both, but the economy is largely psychological. Economics is about decision making. Those decisions may be rational or irrational. Some may be based on math, others on emotion.

Right on! Stock market models are based on game theory, which requires that people make rational decisions in order for the model to work well. Generally the models do work pretty well, but when something psychological happens (i.e. 9-11-01) the models are thrown into a tailspin.

[Beet]

I agree with what has been said, but disagree that it is necessarily a dichotomy. Mathematics describes a method from which certain psychological assumptions are drawn into conclusions and a way for formalizing results. That said, it is somewhat easier to develop powerful results through the creation of more powerful formal models based on simple rational choice assumptions, than it is to find universal, psychological laws governing human behavior.