fallacy of composition


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fallacy of composition

an error in economic thinking that often arises when it is assumed that what holds true for an individual or part must also hold true for a group or whole. For example, if a small number of people save more of their income, this might be considered to be a ‘good thing’ because more funds can be made available to finance investment. But if everybody attempts to save more, this will reduce total spending and income and result in a fall in total saving. See PARADOX OF THRIFT.
References in periodicals archive ?
And the more this set of investors grows, the larger the potential fallacy of composition (that is, what makes sense for some does not make sense for all), especially when applied to markets that lack structural liquidity (such as segments of high-yield and emerging markets).
First, the fallacy of composition entails that system-level outcomes are not simply the sum of all of the decisions taken by the individual actors who comprise the economy.
In fact, the problem with virtually all of the "robots are taking our jobs" claims is that they suffer from the fallacy of composition.
To say otherwise is to commit the fallacy of composition, as we would be confusing the collective and the distributive forms of a word.
But when a large number of economies in the region are engulfed in balance sheet recessions at the same time, and if all of them must abide by the Maastricht limit, a fallacy of composition problem is created which will push the entire region into a deflationary spiral.
Searle argues that this objection involves a fallacy of composition, confusing the properties of a system with those of its parts.
The only successful challenge from within this basic model focused on the problem of the fallacy of composition and, accordingly, the need to consider the importance of the whole.
Ira Saltz, Pat Cantrell, and Joseph Horton, "Does the Aggregate Demand Curve Suffer from the Fallacy of Composition," The American Economist, Vol.
Russell Hardin criticizes Young's ideas on two grounds: that they commit the fallacy of composition by attributing a people's interests to its members and, consequently, risk potentially oppressive consequences; and that the concept of a people is no less morally problematic than the concept of a nation.
THE REAL CULPRIT IS FALLACY OF COMPOSITION, NOT COMPLACENCY
A fallacy of composition lurks here, to which Raffman seems insensitive.
Although repairing balance sheets is the right and responsible thing to do for individual corporations, when a large number of companies shift their priorities from profit maximization to debt minimization all at the same time, a fallacy of composition problem is created where Adam Smith's invisible hand works in the opposite direction by shrinking both the economy and the money supply.