Causal Economics is a frontier branch of the exciting field of behavioral economics, which has produced recent Nobel Laureates like Richard Thaler and Daniel Kahneman. We believe that Causal Economics is a breakthrough approach that needs more mainstream attention to help us better solve economic, social and business issues. Current economic approaches are based on incomplete fundamentals that create confusion, frustration and poor policy.
Our research has been published in peer reviewed academic journals and is available on Heliyon.com and ScienceDirect.com. It provides fresh theoretical and applied support for free markets, small government, personal choice and accountability. Causal Economics places central focus on the fundamental principle of causal coupling – freedom with accountability – putting cause and effect between cost and benefit at the center of all decisions. It allows us to model real life decisions that span multiple periods and involve deliberate up-front costs followed by uncertain future benefits – for example losing 25 pounds. Mainstream economic theories aren’t able to model these scenarios because they are generally structured around single-period, cost OR benefit outcomes.
Causal Economics is a branch of behavioral economics that centers of the concept of causal coupling of cost and benefit over time. It asserts Pareto Optimality when all individuals are able to enjoy the benefits that result from the costs they incur and bear the costs of benefits they receive. Major implications include free markets with corrections for externalities, government based on fair legal frameworks v.s. large bureaucracies, minimal monetary/fiscal policy, workfare prioritized over welfare and taxes aligned to specific priority spending business cases, rather than automatically collected and fed into general accounts based on income, consumption, property and wealth. These implications are driven by economic Pareto Optimality, not political concepts.
The core theoretical breakthrough of Causal Economics is the replacement of conventional single-value (net cost OR net benefit), single-period exogenous lottery outcomes as utilized within mainstream economics, with endogenous multi-period outcomes that always contain both personal total benefit (B) and personal total cost (C), including certain (deliberate) and uncertain components, with cause and effect running in at least one direction. Agents optimize an overall cumulative rank dependent weighted outcome value function against internal personal psychological trade-off constraints. Its core applied breakthrough is the introduction of the Causal Coefficient and four Causal Coupling Mechanisms to evaluate and guide development of effective economic and social activities, policies and institutions. Sustainable Pareto Optimal outcomes are predicted whenever causal coupling of B and C across involved or impacted agents is achieved via a Causal Coefficient ≥ 1. The model provides a powerful framework for additional research into the optimality of policies and institutions that prioritize individual freedom of choice and responsibility to society. Causal Economics minimizes loose analysis rooted in political bias, by providing a simple and transparent tool for analysis.
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