Lay Economics

Lay economics (also called folk or intuitive economics) is the economic reasoning of laypeople. Similar to well-documented naive beliefs about other sciences, such as physics, lay economic beliefs systematically deviate from economic science. Lay economics differs from behavioral economics in that the latter is mostly limited to economics of the household - the economics of whether consumers spend their money and time wisely. We empirically demonstrate faulty lay intuitions across a much broader scope of economic areas, such as labor, where the benefits of industry are seen as jobs created rather than the value of output, trade, where local economies are seen as being made necessarily poorer by allowing dollars spent on imports to "escape" the local economy, and industrial organization, where prices are seen as allocating wealth but not as influencing the production of goods and services. An appreciation of lay economic beliefs can help us better understand why people distrust marketing, how they come to think about the fairness of prices, and why some brand associations are negative.