Wednesday, August 18, 2004

Behavioural Economics

From Newsweek: The new science of decision making. It's not as rational as you think.
Observing that some societies are consistently richer than others, social scientists have invoked such ingenious explanations as "the Protestant ethic" (of working and saving for the future) or "the resource curse" (when an elite controls a valuable natural resource, such as oil, and has no incentive to encourage political and economic modernization). One of the newest explanations is "trust," which varies widely between societies and is strongly correlated with economic growth, says Paul Zak, an economist at Claremont Graduate University. Trust encourages savings and investment, and reduces the "transaction cost" of investigating the people you do business with. But, compared with well-studied behaviors such as aggression, relatively little is known about the biological basis for trust.

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