In economic analysis, the isolated individual serves as a starting point for examining individual action, with the assumption that humans act in accordance with their subjective preferences to achieve desired ends. However, individuals rarely exist in isolation, and the observation of other individuals becomes a necessary component of economic analysis when considering social interaction. When individuals are no longer isolated but interact with one another, the complexity of economic analysis increases. Nevertheless, the basic principles of economic analysis continue to apply.
Observation of other individuals can provide valuable information for an individual. By observing another's actions, an individual can learn about what goods and services are in demand, the methods for producing those goods, and the methods for satisfying the wants of other individuals. The knowledge gained from observation can help individuals make more informed decisions in their own economic activities.
the process of observation is akin to the gathering of information, a crucial aspect of decision-making in the marketplace. This information, gathered through observation, contributes to the individual’s knowledge base, enhancing their ability to make informed decisions.
Observation, in this context, is not merely a passive act but a dynamic process that shapes an individual’s perceptions and judgments about others in the economic sphere. These judgments, formed through observation, can pertain to the reliability or credibility of other economic actors, influencing the individual’s future interactions and transactions with them.
The formation of such judgments and opinions is a testament to the subjective theory of value, a cornerstone of Austrian economics. This theory posits that the value of goods and services is not intrinsic but is subjectively assigned by individuals based on their personal preferences and judgments.
Therefore, changes in behavior, spurred by these formed opinions, underscore the dynamic and subjective nature of economic interactions. They highlight the role of individual agency in shaping economic outcomes, a key tenet of Austrian economics. In essence, observation serves as a conduit for learning, judgment formation, and ultimately, behavior modification in the economic landscape.