fallacy of composition


fallacy of composition

an error in economic thinking that often arises when it is assumed that what holds true for an individual or part must also hold true for a group or whole. For example, if a small number of people save more of their income, this might be considered to be a ‘good thing’ because more funds can be made available to finance investment. But if everybody attempts to save more, this will reduce total spending and income and result in a fall in total saving. See PARADOX OF THRIFT.