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Economics & Strategy

Economic concepts, game theory, and strategic thinking

8 categories80 words

All 8 Categories

Microeconomics

Individual and firm-level economic behavior

Macroeconomics

Economy-wide phenomena and policy

Financial Economics

Markets, investments, and financial instruments

Behavioral Economics

Psychology of economic decision-making

Game Theory Fundamentals

Core concepts of strategic interaction

Strategic Concepts

Advanced strategic thinking patterns

Decision Theory

Rational choice under uncertainty

Collective Action

Problems and solutions in group dynamics

All 80 Words in Economics & Strategy

Complete vocabulary list for easy reference and copy-paste.

💹Microeconomics10

Term	Definition	Example
supply and demand	the relationship between availability and desire that determines price	"Supply and demand set the equilibrium price of wheat."
elasticity	the responsiveness of demand or supply to price changes	"Luxury goods have high price elasticity of demand."
marginal cost	the cost of producing one additional unit	"Firms maximize profit where marginal cost equals marginal revenue."
equilibrium	a state where supply equals demand	"The market reaches equilibrium at $50 per unit."
scarcity	the fundamental economic problem of unlimited wants and limited resources	"Scarcity forces societies to make allocation choices."
utility	the satisfaction or benefit derived from consuming a good	"Economists measure utility to understand consumer choices."
monopoly	a market with only one seller	"The utility company operates as a regulated monopoly."
oligopoly	a market dominated by a few large sellers	"The airline industry is an oligopoly."
perfect competition	a market with many buyers and sellers trading identical products	"Agricultural commodities approach perfect competition."
price discrimination	charging different prices to different customers for the same product	"Student discounts are a form of price discrimination."

🌐Macroeconomics10

Term	Definition	Example
GDP	gross domestic product; the total value of goods and services produced	"GDP growth of 3% indicates a healthy economy."
inflation	a general increase in prices and fall in purchasing power	"Inflation eroded the value of savings."
deflation	a general decrease in prices	"Japan experienced deflation in the 1990s."
recession	a significant decline in economic activity lasting months	"The recession caused unemployment to spike."
fiscal policy	government spending and taxation decisions	"Expansionary fiscal policy increased the deficit."
monetary policy	central bank actions affecting money supply and interest rates	"The Fed tightened monetary policy to fight inflation."
aggregate demand	total demand for goods and services in an economy	"Stimulus checks boosted aggregate demand."
multiplier effect	the amplified impact of spending through successive rounds	"Government spending has a multiplier effect on GDP."
stagflation	stagnant growth combined with high inflation	"The 1970s oil crisis caused stagflation."
trade deficit	when imports exceed exports	"The trade deficit widened as imports surged."

📈Financial Economics10

Term	Definition	Example
arbitrage	profiting from price differences in different markets	"Arbitrage opportunities disappear quickly in efficient markets."
liquidity	the ease of converting an asset to cash without loss	"Real estate has lower liquidity than stocks."
leverage	using borrowed money to amplify potential returns	"High leverage increases both risk and potential reward."
hedge	an investment to offset potential losses	"Airlines hedge against fuel price increases."
derivative	a financial instrument whose value derives from an underlying asset	"Options and futures are common derivatives."
yield	the return on an investment, usually expressed as a percentage	"Bond yields rose as prices fell."
volatility	the degree of variation in trading prices over time	"Market volatility spiked during the crisis."
portfolio	a collection of investments held by an individual or institution	"Diversifying your portfolio reduces risk."
capital	wealth used to generate more wealth	"The startup raised capital from venture investors."
asset	anything of value owned by an individual or entity	"Real estate is a major asset class."

🧠Behavioral Economics10

Term	Definition	Example
bounded rationality	decision-making limited by information, time, and cognitive capacity	"Bounded rationality explains satisficing behavior."
loss aversion	the tendency to prefer avoiding losses over acquiring gains	"Loss aversion makes people hold losing stocks too long."
anchoring	over-relying on the first piece of information encountered	"The initial price serves as an anchor in negotiations."
endowment effect	valuing something more simply because you own it	"The endowment effect explains reluctance to sell at fair prices."
hyperbolic discounting	preferring smaller immediate rewards over larger later ones	"Hyperbolic discounting explains procrastination."
framing effect	different reactions to the same information based on presentation	"Describing meat as '90% fat-free' vs '10% fat' is a framing effect."
herd behavior	following the crowd rather than independent analysis	"Herd behavior amplifies market bubbles."
status quo bias	preference for the current state of affairs	"Status quo bias keeps people with suboptimal investments."
mental accounting	treating money differently based on subjective categories	"Mental accounting explains why people splurge tax refunds."
nudge	subtle policy changes that guide behavior without mandates	"Making organ donation opt-out is a nudge."

♟️Game Theory Fundamentals10

Term	Definition	Example
game theory	the study of mathematical models of strategic interaction	"Game theory explains why competitors often end up in suboptimal equilibria."
Nash equilibrium	a state where no player benefits by unilaterally changing strategy	"Both companies advertising heavily is a Nash equilibrium."
payoff	the reward or outcome a player receives from a strategy	"The payoff matrix shows outcomes for all strategy combinations."
dominant strategy	a strategy that yields the best outcome regardless of opponents' choices	"Defecting is a dominant strategy in the prisoner's dilemma."
zero-sum game	a situation where one player's gain equals another's loss	"Chess is a zero-sum game; one player wins, the other loses."
positive-sum game	a situation where all players can benefit simultaneously	"Trade is often a positive-sum game benefiting all parties."
prisoner's dilemma	a game where rational self-interest leads to worse collective outcomes	"Price wars exemplify the prisoner's dilemma in business."
minimax	a strategy minimizing the maximum possible loss	"The minimax algorithm is used in chess-playing computers."
mixed strategy	a strategy involving randomization among possible moves	"In rock-paper-scissors, the optimal mixed strategy is equal probability."
information asymmetry	a situation where some players have more information than others	"Used car markets suffer from information asymmetry."

🎯Strategic Concepts10

Term	Definition	Example
first-mover advantage	the benefit gained by being the initial actor in a market or game	"Amazon's first-mover advantage in e-commerce proved decisive."
commitment device	a mechanism that binds one to a future course of action	"Burning bridges is a commitment device signaling no retreat."
signaling	actions taken to convey information about oneself to others	"A college degree serves as signaling of ability to employers."
screening	actions by the uninformed party to induce information revelation	"Insurance deductibles are a screening mechanism."
moral hazard	increased risk-taking by someone protected from consequences	"Bailout expectations create moral hazard in banking."
adverse selection	the tendency for higher-risk individuals to seek insurance	"Adverse selection can cause insurance markets to collapse."
credible threat	a threat that is believable because carrying it out is rational	"MAD made nuclear threats credible during the Cold War."
brinkmanship	pushing a dangerous situation to the edge to force concessions	"The negotiator's brinkmanship nearly collapsed the deal."
Schelling point	a solution people converge on without communication	"Grand Central Station is a Schelling point for meeting in NYC."
tit for tat	a strategy of cooperating first, then mirroring opponent's previous move	"Tit for tat won Axelrod's iterated prisoner's dilemma tournament."

⚖️Decision Theory10

Term	Definition	Example
expected utility	the weighted average of utilities across possible outcomes	"Rational agents maximize expected utility."
risk aversion	preference for certainty over gambles with equal expected value	"Risk aversion explains why people buy insurance."
risk neutral	indifference between certain outcomes and gambles of equal expected value	"Corporations often behave as risk neutral for small bets."
sunk cost	a past cost that cannot be recovered	"Rational decisions should ignore sunk costs."
opportunity cost	the value of the best alternative forgone	"The opportunity cost of college includes lost wages."
marginal utility	the additional satisfaction from consuming one more unit	"Marginal utility typically decreases with consumption."
diminishing returns	decreasing incremental output as input increases	"Adding more workers eventually yields diminishing returns."
pareto optimal	a state where no one can be made better off without making another worse off	"A perfectly competitive market reaches Pareto optimality."
revealed preference	inferring preferences from observed choices	"Revealed preference shows she values time over money."
time preference	the relative valuation of present versus future consumption	"High time preference leads to lower savings rates."

👥Collective Action10

Term	Definition	Example
tragedy of the commons	depletion of shared resources due to individual self-interest	"Overfishing exemplifies the tragedy of the commons."
free rider problem	the tendency to benefit from collective goods without contributing	"National defense suffers from the free rider problem."
coordination problem	difficulty in aligning actions when mutual benefit requires agreement	"Which side of the road to drive on is a coordination problem."
public good	a good that is non-excludable and non-rivalrous	"Street lighting is a classic public good."
externality	a cost or benefit affecting parties not involved in a transaction	"Pollution is a negative externality of manufacturing."
club good	a good that is excludable but non-rivalrous	"Streaming services are club goods."
common pool resource	a resource that is rivalrous but non-excludable	"Fisheries are common pool resources vulnerable to overuse."
mechanism design	creating rules to achieve desired outcomes given strategic behavior	"Auction design is an application of mechanism design."
incentive compatibility	a system where honest behavior is in each participant's interest	"The Vickrey auction is incentive compatible."
social dilemma	a situation where individual rationality leads to collective irrationality	"Climate change is a global social dilemma."

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