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RATIONAL IGNORANCE: The decision not to become informed about something because the cost of doing it is more than the expected benefit. In that information is costly, there's always some limit to how much anyone can know. The idea of rational ignorance, while popping up on a daily basis for most of us, is quite important come election time. Many voters decided, logically so, that it's not really worth their efforts to get ALL of the details on every candidate and issue on the ballot.
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FALLACY OF COMPOSITION: The logical fallacy of arguing that what is true for the parts is also true for the whole. In the study of economics, this takes the form of assuming that what works for parts of the economy, such as households or businesses, also works for the aggregate, or macroeconomy. The contrasting fallacy is the fallacy of division. The fallacy of composition is important to the study of macroeconomics. Many, otherwise intelligent-looking folks, commit this fallacy when the subject of macroeconomic policies arise. The macroeconomy, for instance, is not a business, it is not a household, it is not a family, it is NOT a microeconomic entity. It is THE ECONOMY. It has its own set of principles, its own set of rules, its own theories. Treating the macroeconomy like a business or household commonly leads to the fallacy of composition.A common macroeconomic argument that makes use of the fallacy of composition is to treat the economy as if it were a household or a profit-minded business. An offshoot of this argument is to operate the Federal government (the "caretaker" of the aggregate economy) as a household or a profit-minded business. Some folks are prone to argue that economic ailments would vanish if only government operated like a business. For example, during economic bad times (recession), the appropriate action of a profit-minded business is to lay off workers and reduce production. The reasonable action by a household is to reduce spending and set aside, or save, some income for the turbulence to come. Both of these actions, if undertaken by the macroeconomy, or promoted by government policies, would likely turn a modest recession into a devastating depression. The macroeconomy is a complex system comprised of smaller components. An analogy is the human body. Individuals and firms make up the macroeconomy like cells and molecules make up the human body. Rules that apply to cells do not apply to the entire body. Rules that apply to firms do not apply to the entire macroeconomy. What is true at the microeconomic level is not necessarily true at the macroeconomic level. What is true for the parts is not necessarily true for the whole.
Recommended Citation:FALLACY OF COMPOSITION, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2024. [Accessed: April 28, 2024]. Check Out These Related Terms... | | | | | | | Or For A Little Background... | | | | | And For Further Study... | | | | | | | | |
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PURPLE SMARPHIN [What's This?]
Today, you are likely to spend a great deal of time visiting every yard sale in a 30-mile radius seeking to buy either a remote controlled ceiling fan or a how-to book on home decorating. Be on the lookout for vindictive digital clocks with revenge on their minds. Your Complete Scope
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Paper money used by the Commonwealth of Massachusetts prior to the U.S. Revolutionary War, which was issued against the dictates of Britain, was designed by patriot and silversmith, Paul Revere.
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"The roots of education are bitter, but the fruit is sweet." -- Aristotle
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RBC Real Business Cycle
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