What does formal economics emphasize in its analysis?

Formal economics places a strong emphasis on rational decision-making as a fundamental aspect of its analysis. This branch of economics is built on the assumption that individuals and firms act in their own self-interest and make decisions aimed at maximizing utility or profits based on available information and resources. By focusing on rationality, formal economics seeks to construct models and theories that predict behaviors and outcomes in markets.

These models often rely on mathematical formulations, which facilitate the examination of how economic agents respond to various incentives and constraints. Understanding rational decision-making allows economists to derive conclusions about market equilibrium, resource allocation, and overall economic efficiency. This approach has led to the development of important concepts such as supply and demand, consumer choice theory, and game theory—all of which are grounded in the idea that decision-makers act logically and systematically to achieve their goals.

In contrast, while social structures, environmental factors, and cultural practices are important aspects of economic behavior, they do not form the central focus of formal economics as it aims to construct a more objective and analytical view of economic interactions based on rationality.