Introduction
In business economics, other than the mathematics involved, some factors must be considered significant considerations when making conclusions. One pertinent consideration is the fact that financial decision-making is different from others. As one of the best business economists, Adam Smith highlighted this in his book The Wealth of Nations by saying, men, in general, hang together (Khan Academy, 2012). This is because humans have emotions, and they tend to make rash decisions. This paper explains how Adam Smith explores how human nature changes when it comes to business and how feelings might lead individuals astray at times.
Importance of Understanding People’s Behavior
According to Adam Smith, it is critical to understand potential reactions and people’s behavior when making policies because economics is ultimately a moral science, not just a science. Smith’s view of human nature is that we have an innate tendency to be selfish and greedy rather than selfless and fair (Matson, 2021). This leads to bad financial decisions because people are expected to act in ways that serve their interests rather than the common good. This means that tendency gets in the way of objective truth and proper conduct of business practice by causing people to think differently than they would if they reasoned more like intellectuals (Matson, 2021). For people’s minds to be changed from selfishness, they should always pursue the interest of the society rather than their personal gains.
Understanding How People Make Decisions as Business Leaders
Nonetheless, Smith thinks that all humans, regardless of their position in society, either business owners or workers, are eventually capable of going for the common good with encouragement. For business leaders, understanding how people make conclusions and think through problems becomes critical when making sound monetary decisions (Gwartney et al., ki 2021). For example, to choose whether an entrepreneur should start a new product line or hire more workers, they need to be aware of people’s thoughts and emotions. This may affect their decision-making process if they base their choice on such limited information. In other words, it might seem as though people are being unproductive when in reality, they are just incapable of doing the work required.
Role of Emotions
While reason and logic seem to guide most peoples’ decision-making processes, emotions influence their thinking. Emotions play roles, such as motivating people to take action and influencing the reason for their actions. In many situations, emotions can cause people to make irrational conclusions; however, in other cases, they can lead to logical, rational choices (Gwartney et al., 2021). For example, when one experiences the emotion of anger towards misleading advertisements on television or when one is afraid of being told “no” by a potential employer for a job interview. The next day, these emotions will likely lead them to react in irrational and illogical ways. However, if an individual is inspired to pursue a career as an artist or an entrepreneur and feels hopeful about achieving these goals, they should never stop. Positive emotions can make them succeed despite past failures and poor commercial conditions today.
Conclusion
In conclusion, it is crucial to understand how people think and how they make decisions. In this regard, the most influential American economist of the Industrial Revolution, Adam Smith, argued that it is essential to understand how people’s minds work and what potential reactions might deter them from acting rationally. He also believed that individuals can still rely on common sense principles like honesty, prudence, and justice when it comes to making financial decisions. However, business leaders should consider their human nature in making good monetary policies because most humans are selfish and tend to act for their benefit rather than for the common good.
References
Gwartney, J. D., Stroup, R. L., Sobel, R. S., & Macpherson, D. A. (2021). Economics: Private & public choice. Cengage Learning.
Khan Academy. (2012). Introduction to economics | Supply, demand, and market equilibrium | Economics | Khan Academy [Video]. YouTube.
Matson, E. W. (2021). The edifying discourse of Adam Smith: Focalism, commerce, and serving the common good. Forthcoming in the Journal of the History of Economic Thought.