Economics covers “the economy” as well as corporate and individual decision-making. The most basic categories of economics are microeconomics and macroeconomics. Microeconomics is the study of individual markets or market participants like firms and people. Macroeconomics is the study of the economy as a whole, which is the summation of all the markets in an economy.

Data analytics is essential to economics, because most economic analyses are based on data. Economic theory tries to establish the incentives of market participants and understand how firms and individuals will behave in various situations. However, data is necessary to test any theory and determine whether it works. Economists need data to know what’s going on in the world around them.

Economics is a social science, which means that most hypotheses can’t be tested in a laboratory. In the natural sciences, laboratories are places for collecting data by running experiments. It’s much harder to run experiments in economics because the firms and individuals are operating in the real world. Therefore, economics often uses historical data to test hypotheses with statistical models. The goal is to analyze existing data rather than using a laboratory to collect data.

Economists typically use data analytics to establish causality. Causality is a cause-and-effect relationship and analytics can determine the strength of a causal relationship. Economics is used to try to identify the levers that can produce certain outcomes. This is important in a business context and a policy context, because decision-makers want to know what actions will help accomplish certain goals. A firm can make business decisions to improve business outcomes and policymakers can make policy decisions to improve economic outcomes. Which actions are most effective in improving key performance indicators (KPIs)? This can help identify why things are going well or, conversely, why they are going poorly.

As data improves, economic analysis should improve as well. With better data, decision-makers will be able to make more informed decisions. Therefore, there is reason to be optimistic about how data can improve the performance of firms and the performance of entire economies.