We Always Act For A Reason
We’ve established that economics studies real people making real choices. Now for the bigger question: Why do people act, choose, and change? Over the next few chapters, we’ll explore the fundamental principles that drive human behavior. Today we start with the foundation: human action
One Takeaway
Economics begins with the simple truth that humans act with a goal in mind.
What Is Human Action?
Human action is the starting point of economics. Simply put, humans act with purpose. Every action is made with a specific future outcome in mind. This statement is true and undeniable, which means it’s a perfect place to start.
This simple concept forms the basis of economic thought. By reminding ourselves that human action is always purposeful, we can begin to understand the decisions people make, the trade-offs they consider, and the systems they create.
It’s important to note, acting with purpose does not mean acting perfectly. In many cases, people believe a certain action will lead to a specific outcome, but they may be wrong (more on this later).
Why Does This Matter?
Economics deals with intentional, voluntary behavior. People act in an effort to improve their lives in some way. But, not all actions are purposeful. Things like breathing or blinking, which occur without intent, aren’t the focus of economics.
Focusing on purposeful action allows us to look deep into our lives. For example, why does someone choose to spend their savings on a vacation instead of investing in the stock market? Both are purposeful actions. They’re both attempts at improving some specific situation. But even though they are both purposeful, they are both different.
Different motivations and trade-offs shape each decision. Understanding this helps us better understand not only individual choices but also the broader effects they create.
Action Comes in Many Forms
Sometimes our actions are driven by earning money. That’s often true, but also only a part of the story. People also act to find joy, increase comfort, climb the social ladder, or even find personal meaning. All of these can be drivers of action.
Economics seeks to create a clear picture about the logic behind choice. Whether someone starts their own business, volunteers their time, plants a garden, or buys a fancy car, each of these actions reflects individual judgment on what will improve their life.
Every decision has a purpose. Those purposes are based on people trying, in their own way, to the best of their knowledge and ability, to make their lives better.
Key Principles of Action
This first principle of economics is a building block that enables deeper analysis. We can add onto this first truth with other truths such as:
We act based on voluntary choices to achieve specific ends.
We generally prefer more of a good thing to less.
We generally prefer to receive things sooner rather than later.
We expect to benefit from trade, otherwise we wouldn’t agree to the trade.
From here, we begin to have a path to understand the logic behind our actions and the actions of others. This is especially useful when we begin to see actions or outcomes from others that we find strange or counterintuitive. What we see as counterintuitive behavior is still purposeful behavior.
The Bottom Line
Economics begins with the simple fact that humans act purposefully. Every choice we make is an attempt to improve our situation—even when we get it wrong. By recognizing that people act with purpose, we gain a powerful lens to understand the real world, not as a set of random outcomes, but as the product of billions of individual decisions unfolding in front of our eyes.
This is Chapter 3 of Economics for Busy People, a book I’m sharing weekly on how economic thinking improves everyday decisions. [Read Chapter 2: We Aren’t Rocks (Or Chemicals, Or Atoms)] | Subscribe for weekly insights