What is Causal Economics?

For a technical treatment of Causal Economics, visit the article in the journal Heliyon at https://www.sciencedirect.com/science/article/pii/S2405844018348138.

Causal Economics is a decision theory that branched out from behavioral economics. It explains behaviors that can’t be effectively modelled by existing mainstream theories and delivers unique applied insights. Its central concept is causal coupling of cost and benefit – across individuals and society.

Causal economics provides fresh theoretical and applied support for free markets, small government, personal choice and accountability. It 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.

An example would be losing 25 pounds or starting a company. Mainstream economic theories aren’t able to model these scenarios because they are generally structured around single-period, cost OR benefit outcomes.

It asserts Pareto Optimality (no one can be made better off without making someone else worse off) 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 vs. large bureaucracies, minimal monetary/fiscal policy 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.

For more on Causal Economics, visit the dedicated website: www.causaleconomics.com