Inspired by this year's Edge question ("What scientific term or concept ought to be more widely known?"), Bloomberg columnist Noah Smith enumerates five economic concepts that we would be well-served to familiarize ourselves with: "Endogeneity" (when you don't know whether something is a cause or effect); "Marginal versus average" (something can be good on average, but so bad at the margins that it's a net negative); "Present value and discounting" (how much would you sacrifice today for the promise of something great tomorrow?); "Conditional versus unconditional" (you can hedge a prediction by adding a condition: "Assuming Donald Trump loses the election, the biggest crisis we'll face is a continued transfer of wealth from the poor to the rich"); "Aggregate" (differentiating global effects from local ones: borrowing money reduces your personal net worth, but increases some one else's, so you're getting poorer, they're getting richer and in the aggregate, it's a wash -- governments need to think in aggregate, voters need to think in particular). (more…)
