Thursday, April 26, 2007

Finance vs. Economics

I got my MBA prior to coming to coming back to school to work on my PhD in Economics. Having studied both, I was thinking about what the difference is between finance and economics. Here's one thought I had:

In finance, you focus on the time value of money. In economics, you focus on the money value of time.

Another thought:

Finance typically focuses on maximization of wealth. Economics focuses on the optimization of subjectively valued goals. Conceived of in this way, finance is a specialized subset of economics.

This is not a criticism of finance at all. Economists know all too well about the benefits of specialization:

Economists can expect to make an above average salary. Finance PhDs typically start off around $125,000 or so for a 9-month academic position and go up from there. Their consulting and corporate opportunities are also typically far more lucrative.

For anyone interested in pursuing an academic career in finance, here is an excellent essay by Don Chance (PDF) of LSU.

1 comment:

subhash said...

pRETTY much informative