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.