Attention economics studies management of information in environments where human attention is treated as a scarce commodity. Improvements in telecommunication in last decades rendered information as the abundant resource and attention as the scarce one. Attention economics applies economic theory to a variety of problems aiming to assure the efficient use of this scarce resource. Some research questions in attention economics are: What is an effective policy to deal with e-mail spams which distract people? Similarly, how should sms messages and phone calls for advertisement purposes, which can be disturbing to many people, be dealt with? How should the user interface of a website be designed to capture consumer attention?
Behavioral economics and the related field of behavioral finance study the impacts of social, cognitive, and emotional factors on economic decisions of individuals and institutions. Unlike in standard economic theory, agents are not assumed to be perfectly rational. Insights from psychology are integrated with microeconomic theory in order to explain some “puzzles” which the standard economic theory has failed to adequately answer. For instance, behavioral finance offers explanations to trends in prices in financial markets (which may result in bubbles and crashes) by attributing to imperfections such as limited investor attention, overconfidence, over-optimism, herding instinct and noise trading. In order to explain why subjects deviate from rational behavior in experimental game-theoretic studies, behavioral economists emphasize the importance of emotional factors such as fairness and altruism, which is in contrast with the “perfect selfishness” assumption in the standard economic theory.
Contract theory studies how economic actors make contractual arrangements, generally in the presence of asymmetric information (i.e., the two parties of the contractual arrangement have access to different sets of information). Some research questions in contract theory are: How should managerial compensation schemes be designed to deal with the “moral hazard” problem? What are the problems in second-hand car markets arising from the fact that there is asymmetric information between buyers and sellers about the quality of the cars sold?
Development economics studies the economic aspects of the development process in low-income countries. Majority of development economists are employed by, do consulting with, or receive funding from institutions such as IMF and the World Bank. Some research questions in development economics are: How to promote stable and sustainable growth in poor countries? How is economic growth influenced from, or correlated with, economic variables such as elementary education, higher education, political stability, fair court system, availability of clean water and medical care, or equality of income distribution?
Econometrics studies how statistical methods can be applied to economic data in order to give empirical content to economic relations. It allows testing economic theories, estimating parameters of an economic model, and using estimation results for forecasting and policy evaluation purposes. Econometric techniques are used in a variety of research areas, such as in labor economics, health economics, education economics, finance, and industrial organization.
Education economics studies economic issues relating to education, including the demand for and financing and provision of education. Some research questions in education economics are: What is the relationship between economic development and education? What are the positive externalities associated with education? Should government subsidize education? If so, in what form and to what extent?
Experimental economics applies experimental methods to study economic questions. The data collected in experiments are used to test the validity of economic theories and estimate the size of various effects. Some research questions in experimental economics are: In coordination games, can laboratory subjects coordinate, or learn to coordinate, on one of multiple equilibria or a Pareto best equilibrium? Are there mechanisms to help subjects to do so? In a game-theoretic setting, do individuals deviate from “rational behavior” due to emotions such as altruism, spitefulness, tastes for equality, or tastes for reciprocity? And if so, to what extent?
Financial economics studies how to raise and expend financial resources across time and in an environment of uncertainty. Financial economics builds upon the foundations of microeconomics and decision theory. Research topics in financial economics include measuring and managing risk, asset pricing, the optimum capital structure of a firm, and market efficiency.
Game theory studies strategic decision making. Also known as “interactive decision theory”, game theory analyzes how rational decision-makers interact in environments in which they may have conflicting or shared interests. Game theory has applications in a wide range of areas, such as in business (e.g., how to make bids in an auction), in political economy (e.g., properties of different voting systems) and in biology (e.g., the consequences of evolutionary forces).
Health economics studies economic issues relating to health, including the demand for and financing and provision of health services. In broad terms, health economists study the functioning of health care systems and the consequences of health-affecting behaviors such as smoking. Some research questions in health economics are: What influences a person’s health? How to assign health an economic value? What factors influence the supply and demand of health? How should an efficient healthcare system be? How should healthcare services be financed?
Industrial organization builds on the theory of the firm and studies the structure of firms and markets. The tools of game theory are extensively used. Industrial organization has significant practical impacts on antitrust law and competition policy. In industrial organization, equilibrium outcomes are studied under different market structures (e.g., monopoly, oligopoly, monopolistic competition etc.) and in environments with price discrimination, product differentiation, durable goods, entry barriers, mergers and acquisitions, etc.
International economics studies how national economic activities are influenced from interactions of countries, including trade, investment and migration. It studies international flow of goods and services (international trade) and capital (international finance). International economics deals with questions such as: What are the benefits of free trade? What determines the pattern of trade across nations? How are exchange rates influenced from international capital movements and interest-rate differentials? How should investors and multinational corporations deal with international risks such as political risks and foreign-exchange risks?
Labor economics seeks to understand the functioning and dynamics of labor markets where workers and employers interact. Looking at the supply (workers) and demand (firms) sides in labor markets, labor economics attempts to understand the resulting pattern of wages, employment, and income. Labor economics deals with questions such as: How do the job search and bargaining processes take place? When there is an increase in wages, how do substitution and income effects interact in determining labor supply?
Macroeconomics studies economy-wide phenomena, i.e. the performance, structure, and behavior of an economy as a whole. Macroeconomics is one of the two most general fields in economics. (The other one is microeconomics, which studies the behavior of “small” economic entities.) Some important research questions in macroeconomics are: What causes long-run economic growth? Why are there short-run fluctuations in economic output? How can government policy influence long-run economic growth and short-run economic fluctuations? How do macro variables, such as output, consumption, investment, saving, price level and interest rate, interact or correlate with one another?
Mechanism design (sometimes called reverse game theory) is a field in game theory where the point of interest is designing games (or “mechanisms”) in a variety of contexts so that the equilibrium outcomes of these games possess desirable properties such as efficiency, fairness, and non-manipulability. In mechanism design, economists study, for instance, how to design an auction to sell out an object to attain maximum revenue, or which algorithm to employ to place students to colleges using the test scores and college preferences of students.
Microeconomics studies the behavior of individuals, firms or other “small” economic entities. Microeconomics is one of the two most general fields in economics. (The other one is macroeconomics, which studies economy-wide phenomena.) Some important research questions in microeconomics are: How do individuals and firms allocate scarce resources? How are prices determined in markets? What are the properties of market equilibria under different market structures? How do individuals make their choices under uncertainty?
Monetary economics studies the functions of money (as a medium of exchange, store of value, and unit of account) and the effects of monetary systems on economy. Many monetary economists are employed by central banks. Some important research questions in monetary economics are: How should money supply be measured in a country? What should be the policy goal of a central bank: output stability, price stability or both? What are the relationships between interest rate, inflation rate, business cycles and exchange rates?
Public economics studies government policy through the lens of economic efficiency and equity. In public economics, microeconomic theory is used to assess whether or not private markets result in efficient outcomes, and when not, to what extent and in which form government involvement should be. Some research questions in public economics are: What is the optimum level of taxation? How is an efficient taxing scheme? Which public policy is most effective as a remedy to a specific market failure problem? What are the impacts of taxing schemes and public policies on macroeconomic stabilization and income distribution?