Jeff Bezos and Bill Gates in May, 2001. (STAN HONDA/AFP via Getty Images) AFP via Getty Images Economics was the most common major of the 100 wealthiest billionaires, Match College recently found, with Harvard the most common undergraduate college. Their study, based on the Forbes World Billionaires list combined with research on their academic backgrounds, should be read in light of two important caveats that economics majors will (hopefully) have learned. But there’s no doubt that economics provides helpful insights for those on their way to earning a billion dollars. The first caveat is that correlation does not mean causation. Did the economics major enable these people to become billionaires? Or did the people with the ambition to become billionaires choose the major because it seemed most likely to help them? Perhaps they would have succeeded whatever their major, or maybe their success was a little due to their major. Harvard was the most common undergraduate university for the billionaires in the sample, and again we must ask: Did the Harvard education make the difference in these people becoming billionaires? Or do the people with the brains and determination to become billionaires easily win admission to Harvard? The second caveat is that we must be cautious about conclusions based on small numbers. The 100 billionaires in the sample included 16 economics majors. Every year about 39,000 people earn economics degrees in the U.S., and plenty more overseas, so there are probably a couple of million people in business who majored in economics. Sixteen of them became top-100 billionaires. Big deal. Better odds than winning the lottery, probably, but pretty much a long-shot. Would an economics major be useful to people on their path to becoming billionaires? Here the study is on firm ground. Economists learn about competition. It’s baked into analysis of supply and demand. In their upper division courses, students will learn that not only do particular goods compete with other similar goods, but also with different goods that can serve the same purpose. (Android phones compete not only with iPhones, but also with other devices that can access the internet, take pictures and run games.) And every good competes with all other products for share of the buyer’s wallet. Cell phones compete against concert tickets and vacations for a consumer’s spending. MORE FOR YOU Opportunity cost is another hugely valuable concept that is repeated in economics studies. The cost of an activity is what you give up in order to do it. An entrepreneur has plenty of ideas, but not enough time to do them all. An activity may seem cheap in dollar terms but be expensive in terms of the entrepreneur’s time. Prioritizing time is even more important than prioritizing dollars spent building the business. Incentives are another area of economics that billionaires understand. Sales people often work harder when they are on commission. Customers may buy more when offered free shipping. A supplier may be slow to pay unless offered a discount. Incentives are not everything, of course. (A sale on Scotch whisky does not induce teetotalers to buy.) But incentives are powerful even if not omnipotent. Economics major also learn to think at the margin. Most business decisions are not all-or-nothing, such as to advertise or not. The entrepreneur asks, “How much revenue does an additional dollar of advertising bring in?” Or how much production comes from one additional worker? Or how much do we have to cut the price to induce one more sale? This leads naturally to the modern data analytics that has helped internet entrepreneurs earn their billions. Most of the benefits of economics for entrepreneurs comes from microeconomics, the study of particular markets, rather than macroeconomics, the study of business cycles. Macro may be useful for investments (but not always), but micro is the subject for people going into business—though a bit of macro will help as well.
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