# What's the difference between [finance] and [economics]?

We have two tags, and . Do we really need them both?

Wiki Excerpt of

Questions having to do with financial mathematics. Please note that for questions in quantitative finance, quant.stackexchange.com is perhaps a better site.

And

Wiki Excerpt of

For questions regarding the mathematical analysis of economic models and problems. This includes questions about the formulation or solution of models from microeconomics or macroeconomics.

I understand there might be a difference, but what is it? The first excerpt has little content to it from a mathematical point of view.

• It is not an easy question to answer – Willie Wong Jan 16 '14 at 14:49
• I agree, Willie, but it might be easy to answer with respect to the tags. – Asaf Karagila Jan 16 '14 at 14:49
• @Grigory: Well, that makes sense. But these two tags are not trivially small tags with like 50 questions each. These are 200-300 questions each. So having a separate question seems reasonable. I do agree that the old thread is way waaay too cluttered to be of any further use nowadays. – Asaf Karagila Jan 16 '14 at 15:43
• Finance is taught at the business school, economics at the department of economics. Consequently, economists are more likely to be able to help with economics models, while finance people are more likely to be able to compute the value of certain assets etc. The division makes sense in my view (from the economics department). – Nameless Jan 16 '14 at 18:26
• IMHO, finance is more on the practical side about how to make capital flows smoothly across different financial entities. In contrast, economics is more empirical/theoretical in nature. It placed more emphasis on interpretation of economic phenomena. – achille hui Jan 16 '14 at 18:47
• I would say finance is a subfield of economics. The other inclusion does certainly not hold. I'm of course biased by being an economist. – Michael Greinecker Jan 16 '14 at 20:20
• @Michael: I was hoping that you'll comment/answer. Thanks! – Asaf Karagila Jan 16 '14 at 21:28
• @MichaelGreinecker I think you should remove your comment. I find it amusing but I worry other people might take it seriously. It is a very biased judgement (and imo not true), stated as a fact. – Lost1 Jan 17 '14 at 13:28
• @Lost1 I happen to think it is true. – Michael Greinecker Jan 17 '14 at 13:38
• @Lost1 To me, "I would say" + "I'm of course biased" is enough to signal subjectivity. Especially with your comment two lines below... :-) – Did Jan 17 '14 at 22:07

Maybe for the street person there is no difference but from the point of view of the mathematics involved there is a wide gap between these two tags. My answer is similar to hejseb's answer but I wanted to add more detail:

1. Finance tag is likely to attract questions related to applications of stochastic calculus and stochastic partial differential equations.
2. Economics tag is likely to attract questions related to constrained optimization and fixed point theorems.
3. There probably maybe an overlap for shallow homework tag type questions but again as many want to ignore homework questions one could consider the overlap a set of measure (of our interest) zero.

In practice they're totally different things. Finance's concerns are generally narrow, short-term, and quantitative, while economics is generally concerned with broad, long-term, and qualitative problems. Of course that's a massive oversimplification, but I don't think anyone would confuse the two areas.

• I'm a set theorist. I honestly see no difference between economics and finance. I mean, the name implies there is a difference, but if I didn't know better, I'd think the two are the same. – Asaf Karagila Jan 16 '14 at 21:53
• Financial question: "How much money is an at-the-money June call on wheat worth at the moment?" Economic question: "Which policy should be used to counter inflation?" – Daniel McLaury Jan 16 '14 at 22:11
• Or perhaps this is better: Finance is an application of probability and statistics, while economics is an application of optimization. – Daniel McLaury Jan 16 '14 at 22:13
• @DanielMcLaury well Pareto optimisation is actually very popular in finance for maximizing returns versus risk, so your observation is keen but not always right. – Tim Seguine Jan 17 '14 at 22:06

I think both of them are needed. Browse through the questions and you'll probably see that they are a little different.

For example, in the tag you have (or should have!) lots of questions about the pricing of financial assets (annuities, compound interest calculations, different asset pricing formulas such as Black-Scholes etc).

In the tag, you should find more questions concerned with utility and maximization of various things. Also touching much more on game-theory, statistics/econometrics, etc, than you'd expect for questions.

But they are of course not disjoint, but overlap in some instances.

Two examples:

• To render a tag as a tag, use [tag:finance] – Peter Taylor Jan 17 '14 at 14:39

I would say that Finance focuses on the study of assets traded on financial markets, whereas Economics is concerned with ALL markets (financial markets, labor market, markets for goods...)

"Finance" is the collection of methods techniques developed for making money playing the stock market and to understand their limit. In particular quantitative finance deals with mathematical methods.

"Economics" is a social science. Wikipedia simply reports

Economics is the social science that analyzes the production, distribution, and consumption of goods and services.

Then economics is not supposed to be related only to money.