ABSTRACT
Most people’s understanding of economics is remarkably flawed. We have a tough time comprehending complex systems in any domain, and the economy is no exception. As a result, many people lack an elementary grasp of basic economic concepts, and are unaware of the extent of their ignorance. This predicament results from an acute mismatch between the complexities of economics and the constraints of human cognition. Attempts to “bridge the gap” (by communication and education) have failed. And yet, people are expected to have economic views, and they do. This is important because what people think affects how they act, and how they act, collectively, affects the economy. Moreover, people’s beliefs figure prominently in the democratic process, constraining which policies can be implemented and at what political cost. In this chapter, we delineate the field we will explore in the book: economic understanding, or how people think in the economic domain. We ask: What are the features of economics that make it so difficult? What are the cognitive constraints which imperil understanding? How do people come to grips with the workings of the economy? And what might this all mean for policy makers?
