The world of economy and finance can be mixed places because they seem to be areas where the parts that seem to be irrelevant are constantly interacting with each other. It can also be difficult to get out of it.
Fortunately, the best economists in the business share what they know; If you study these important courses of theirs, the basic economy and finance will make sense for you.
Herbert A. Simon
Although Herbert A. Simon is known for his groundbreaking work on artificial intelligence, his most important lesson is that companies (and people) should not act for one purpose. He has a way of making rational decisions; information gathering (research), design (creating possible ideas) and selection (making decision and applying).
When everyone has to make a decision about a difficult issue, they can apply these three stages and make their own decision. While people generally don’t do these three things consciously, for example, following these three steps consciously when investing can help you make better decisions.
John Maynard Keynes
According to John Maynard Keynes, the free market will ultimately provide jobs for everyone, but the state needs to intervene from time to time to prevent a decline. According to him, the state’s large expenditures will stop the effect of the decline.
Keynes’s views were considered very controversial at that time, but the truth is that whenever there are big economies, there is always someone who saves them. No state will stand on the sidelines and leave its economy to itself.
Warren Buffett, who has a master’s degree in economics, is one of the most successful investors in history. Warren Buffett has so many important ideas that it’s hard to identify one of them as the “most important,, but yatırım investing in something you fully understand biri is one of his most viable lessons.
For example, the last few economic failures of America have always come as a result of unnecessarily complicated or poorly understood investments. The most prominent example of this was the internet bubble of investments made by researching which companies could be successful in this business.
Investors are still able to invest in business lines that they do not fully understand, from basic internet companies to crypto currencies. But as Buffett said; The smart investor first investigates, knows and then invests in what he will invest.
Everyone has heard the law of ”supply and demand.. Alfred Marshall is the father of this concept. Prices are also reasonable when supply and demand are met properly. As prices fall, some mills withdraw from the market, reducing supply and increasing demand, so prices rise again.
Nowadays, there are many things that can be learned from this simple lesson. Technology giant Apple, for example, is constantly striving to keep demand for its products high so that it can keep prices high. On the other hand, e-commerce giant Amazon.com is trying to reduce the cost of supply as much as possible so that it can sell products cheaper than competitors. No matter what sector you are in, you know exactly where the demand comes from and how much the supply is.
Elinor Ostrom is the only woman to have won the Nobel Prize in Economics. There are two important lessons that Ostrom can give us. The first lesson is that people connect common resources to common rules over time. However, common resources such as irrigation canals and pastures should be shared. The second is the Ostrom Law, which says that there is a theory that can explain it for everything that exists.
Ostrom’s lessons show that common resources should be shared and laws should be prepared to encourage the sharing of these resources. In addition, a businessman or entrepreneur can find great things and analyze why it works and develop great strategies.
Muhammad Yunus is an economist who discovered how big the impact of small loans on poor societies. His invention of the concept of microcredit, in which small amounts of credit have had great impact.
What Muhammad Yunus put forward for microcredit nowadays applies to many other things than microcredit in third world countries. With societies where conditions offer limited opportunities, the impact of small contributions is much greater than expected.
Adam Smith believed that by nature, people thought only of themselves, but for this very reason, this act of self-reflection eventually turned into thinking of society.
So for Smith, a baker does not only make bread so that people can eat bread; he also makes bread to make money. This action of the baker in line with his desire and need to make money has been proved by the people who buy his breads, which provides a social benefit. If no one buys bread from that baker, then society no longer needs the service it provides, so the baker shuts down the oven.
Nowadays, companies have to take into account Smith’s principle when determining what to produce. Because if your product is not in demand, you will be wasting the source by insisting on producing that product.
If you’ve seen the 2001 movie A Beautiful Mind, starring Russell Crowe, then you know John Nash. Although he was actually a mathematician rather than an economist, he was a Nobel Prize winner in economics. Nash’s most important lesson comes from the “game theory u where he makes a great contribution; Before a person develops a strategy for himself, one must take into account the intentions and strategies of others. In other words, there is no single “perfect strategy..
Especially nowadays, the connection between humanity is more intense. A strategy without taking into account the motivations and intentions of others means inviting failure.
The most important lesson of Friedrich Hayek is the fact that limited information can lead to imperfect decisions and that a person or a group can never hold enough information to properly allocate resources. This makes it very difficult to predict the market or the economy. However, the economy or the market itself can effectively distribute resources by changing prices.
Today’s companies, businessmen and investors have to take into account price fluctuations. When a company tries to prevent variable price practices in order to protect its brand reputation, they miss the important information they can obtain by following the fluctuations in free pricing.
Friedman has made many contributions to the economy, but his most important lesson to be used by everyone is the permanent income hypothesis. Behind this is the idea that people always spend a bit of all the income they will earn throughout their lives. The only way to change this expenditure is to change what is perceived as regular income, with the exception of expenditures and temporary reductions.
Today people continue to spend their regular income. However, regular income can be affected by income taxes and savings plan transfers. Increase your savings plan payments as your salary increases; so your apparent income will change without you noticing.
Max Weber’s rational-legal model is an important lesson for the structuring of both states and companies. Although it is a mixed general model, the main point of this model is; To be successful, there is a need for clearly defined chains of command and the selection of people with specific skills in recruiting for any position.
Nowadays, many companies prefer flat structures without clearly defined positions and chains of command. However, as companies grow, flat structures become a burden. As companies grow, they need to get closer to Weber’s model.
Burton Gordon Malkiel
Burton Gordon Malkiel’s most important lesson is this; investors tend to make bad investment decisions because they do not realize the tendency of the market to be effective. In other words, a news or event related to an investment will affect the share prices of the related companies.
You have heard of what is called index investment; index investment is the work of Malkiel. The number of analysts who think that low-price index investment is the most sensible investment tool is increasing day by day.
William F. Sharpe
Get ready for some math. William F. Sharpe, today known as the Sharpe Ratio. The Sharpe Rate is a way of calculating risk adjusted earnings and is used by many analysts to determine when to trade shares. The lesson here is; when determining how good an opportunity is, the risks of that opportunity should always be taken into consideration.
Nowadays, many investors are simply calculating what will happen if everything goes perfectly. But the money, time and effort to be invested must be compared with the risks and the decision must be made accordingly.