Understanding choice by individuals and groups is central in economics. With scarcity, choosing one alternative implies foregoing another alternative; economists refer to this as opportunity cost. For instance, learning one skill implies time not spent learning another. At an applied level this approach often requires an explicit modeling of the spectrum of choices available and thus implicitly those that are unavailable.

Economists believe that incentives and preferences (tastes) together play an important role in shaping decision making. Sometimes a preference relation can be represented by a utility function (utilitarianism may be viewed as a philosophical basis of much of economics; see goodness and value theory for other approaches to value).

Mainstream economics does not assume a priori that markets are preferable to other forms of social organization. To the contrary, much analysis is devoted to cases where market failures lead to resource allocation that is suboptimal by some standard. In such cases, economists may attempt to find policies that will avoid waste, either directly by government control or indirectly by regulation that forces market participants to act in a manner consistent with optimal welfare.

Despite the extreme controversy surrounding larger economic issues, there is significant agreement among mainstream economists on the fundamentals of the subject, especially as reflected in microeconomics as opposed to macroeconomics.

Much contemporary theory assumes that economic agents act rationally to optimize well-being given available information. This may sometimes be an acceptable approximation (for instance, if individual irrationality cancel each other out in the aggregate) and tends to produce tractable results. However, this framework ("Homo economicus") is not accepted by all. More recently, irrational behavior and imperfect information have increasingly been the subject of formal modeling (often referred to as behavioral economics), resulting in some Nobel Prizes in economics. An example is the growing field of behavioral finance which combines traditional theory with cognitive psychology.