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The term ''Homo economicus'', or economic man, is the portrayal of humans as agents who are consistently
rational Rationality is the quality of being guided by or based on reasons. In this regard, a person acts rationally if they have a good reason for what they do or a belief is rational if it is based on strong evidence. This quality can apply to an abi ...
and narrowly self-interested, and who pursue their subjectively defined ends optimally. It is a word play on ''
Homo sapiens Humans (''Homo sapiens'') are the most abundant and widespread species of primate, characterized by bipedalism and exceptional cognitive skills due to a large and complex brain. This has enabled the development of advanced tools, culture ...
'', used in some
economic theories Economics () is the social science that studies the production, distribution, and consumption of goods and services. Economics focuses on the behaviour and interactions of economic agents and how economies work. Microeconomics analyzes w ...
and in
pedagogy Pedagogy (), most commonly understood as the approach to teaching, is the theory and practice of learning, and how this process influences, and is influenced by, the social, political and psychological development of learners. Pedagogy, taken ...
. In
game theory Game theory is the study of mathematical models of strategic interactions among rational agents. Myerson, Roger B. (1991). ''Game Theory: Analysis of Conflict,'' Harvard University Press, p.&nbs1 Chapter-preview links, ppvii–xi It has appli ...
, ''Homo economicus'' is often modelled through the assumption of perfect rationality. It assumes that agents always act in a way that maximize utility as a
consumer A consumer is a person or a group who intends to order, or uses purchased goods, products, or services primarily for personal, social, family, household and similar needs, who is not directly related to entrepreneurial or business activities. ...
and
profit Profit may refer to: Business and law * Profit (accounting), the difference between the purchase price and the costs of bringing to market * Profit (economics), normal profit and economic profit * Profit (real property), a nonpossessory inter ...
as a producer, and are capable of arbitrarily complex deductions towards that end. They will always be capable of thinking through all possible outcomes and choosing that course of action which will result in the best possible result. The rationality implied in ''Homo economicus'' does not restrict what sort of preferences are admissible. Only naive applications of the ''Homo economicus'' model assume that agents know what is best for their long-term physical and mental health. For example, an agent's utility function could be linked to the perceived utility of other agents (such as one's husband or children), making ''Homo economicus'' compatible with other models such as ''
Homo reciprocans ''Homo reciprocans'', or reciprocating human, is the concept in some economic theories of humans as cooperative actors who are motivated by improving their environment through positive reciprocity (rewarding other individuals) or negative reciproc ...
,'' which emphasizes human
cooperation Cooperation (written as co-operation in British English) is the process of groups of organisms working or acting together for common, mutual, or some underlying benefit, as opposed to working in competition for selfish benefit. Many animal a ...
. As a theory on human conduct, it contrasts to the concepts of
behavioral economics Behavioral economics studies the effects of psychological, cognitive, emotional, cultural and social factors on the decisions of individuals or institutions, such as how those decisions vary from those implied by classical economic theory. ...
, which examines
cognitive biases A cognitive bias is a systematic pattern of deviation from norm or rationality in judgment. Individuals create their own "subjective reality" from their perception of the input. An individual's construction of reality, not the objective input, m ...
and other irrationalities, and to
bounded rationality Bounded rationality is the idea that rationality is limited when individuals make decisions, and under these limitations, rational individuals will select a decision that is satisfactory rather than optimal. Limitations include the difficulty o ...
, which assumes that practical elements such as cognitive and time limitations restrict the rationality of agents.


History of the term

The term "economic man" was used for the first time in the late nineteenth century by critics of
John Stuart Mill John Stuart Mill (20 May 1806 – 7 May 1873) was an English philosopher, political economist, Member of Parliament (MP) and civil servant. One of the most influential thinkers in the history of classical liberalism, he contributed widely to ...
's work on political economy.Persky, Joseph. "Retrospectives: The Ethology of Homo economicus." ''The Journal of Economic Perspectives'', Vol. 9, No. 2 (Spring, 1995), pp. 221–231 Below is a passage from Mill's work that critics referred to:
olitical economydoes not treat the whole of man's nature as modified by the social state, nor of the whole conduct of man in society. It is concerned with him solely as a being who desires to possess wealth, and who is capable of judging the comparative efficacy of means for obtaining that end.
Later in the same work, Mill stated that he was proposing "an arbitrary definition of man, as a being who inevitably does that by which he may obtain the greatest amount of necessaries, conveniences, and luxuries, with the smallest quantity of labour and physical self-denial with which they can be obtained."
Adam Smith Adam Smith (baptized 1723 – 17 July 1790) was a Scottish economist and philosopher who was a pioneer in the thinking of political economy and key figure during the Scottish Enlightenment. Seen by some as "The Father of Economics"——� ...
, in ''
The Theory of Moral Sentiments ''The Theory of Moral Sentiments'' is a 1759 book by Adam Smith. It provided the ethical, philosophical, economic, and methodological underpinnings to Smith's later works, including '' The Wealth of Nations'' (1776), ''Essays on Philosophica ...
'', had claimed that individuals have sympathy for the well-being of others. On the other hand, in ''
The Wealth of Nations ''An Inquiry into the Nature and Causes of the Wealth of Nations'', generally referred to by its shortened title ''The Wealth of Nations'', is the '' magnum opus'' of the Scottish economist and moral philosopher Adam Smith. First published in ...
'', Smith wrote:
It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.
This comment seems to suggest a sort of rational, self-interested, labor-averse individual. However, in Book V, Chapter I, Smith argues, "The man whose whole life is spent in performing a few simple operations, of which the effects are perhaps always the same, or very nearly the same, has no occasion to exert his understanding or to exercise his invention in finding out expedients for removing difficulties which never occur. He naturally loses, therefore, the habit of such exertion, and generally becomes as stupid and ignorant as it is possible for a human creature to become." Smith not only excoriates division of labor and ''Homo economicus'' but even prefigures
Marx's theory of alienation Karl Marx's theory of alienation describes the estrangement (German: ''Entfremdung'') of people from aspects of their human nature (''Gattungswesen'', 'species-essence') as a consequence of the division of labor and living in a society of strati ...
of labor. Thus, his opening paragraph sets up the standard conception of work specialization only to shatter it later on. The early role of Homo Economicus within neoclassical theory was summarised to include a general objective of discovering laws and principles to accelerate further growth within the national economy and the welfare of ordinary citizens. These laws and principles were determined by two governing factors, natural and social. It had been found to be the foundation of neoclassical theory of the firm which assumed that individual agents would act rationally amongst other rational individuals. In which Adam Smith explains that the actions of those that are rational and self-interested under homo economicus promotes the general good overall which was understood as the efficient allocation of material wealth. However, social scientists had doubted the actual importance of income and wealth to overall happiness in societies. The term had initially been used to criticise the nature of the economic agent that Smith and Mill had illustrated heavily in their writings. It had been stated that from an analytical perspective, Mill’s contribution to the development of Homo Economicus was one of great importance where he was able to define the political economy with differing aspects of production and the distribution of wealth. However, Adam Smith had been the first to demonstrate that under appropriate policies and an economic system that national prosperity could occur due to the selfishness of individuals. Economists in the late 19th century—such as Francis Edgeworth,
William Stanley Jevons William Stanley Jevons (; 1 September 183513 August 1882) was an English economist and logician. Irving Fisher described Jevons's book ''A General Mathematical Theory of Political Economy'' (1862) as the start of the mathematical method in ec ...
,
Léon Walras Marie-Esprit-Léon Walras (; 16 December 1834 – 5 January 1910) was a French mathematical economist and Georgist. He formulated the marginal theory of value (independently of William Stanley Jevons and Carl Menger) and pioneered the developme ...
, and
Vilfredo Pareto Vilfredo Federico Damaso Pareto ( , , , ; born Wilfried Fritz Pareto; 15 July 1848 – 19 August 1923) was an Italians, Italian polymath (civil engineer, sociologist, economist, political scientist, and philosopher). He made several important ...
—built mathematical models on these economic assumptions. In the 20th century, the
rational choice theory Rational choice theory refers to a set of guidelines that help understand economic and social behaviour. The theory originated in the eighteenth century and can be traced back to political economist and philosopher, Adam Smith. The theory postula ...
of
Lionel Robbins Lionel Charles Robbins, Baron Robbins, (22 November 1898 – 15 May 1984) was a British economist, and prominent member of the economics department at the London School of Economics (LSE). He is known for his leadership at LSE, his proposed de ...
came to dominate mainstream economics. The term "economic man" then took on a more specific meaning: a person who acted rationally on complete knowledge out of self-interest and the desire for wealth.


Model

''Homo economicus'' is a term used for an approximation or
model A model is an informative representation of an object, person or system. The term originally denoted the plans of a building in late 16th-century English, and derived via French and Italian ultimately from Latin ''modulus'', a measure. Models c ...
of ''
Homo sapiens Humans (''Homo sapiens'') are the most abundant and widespread species of primate, characterized by bipedalism and exceptional cognitive skills due to a large and complex brain. This has enabled the development of advanced tools, culture ...
'' that acts to obtain the highest possible well-being for themself given available information about opportunities and other constraints, both natural and
institution Institutions are humanly devised structures of rules and norms that shape and constrain individual behavior. All definitions of institutions generally entail that there is a level of persistence and continuity. Laws, rules, social conventions a ...
al, on their ability to achieve their predetermined goals. This approach has been formalized in certain
social sciences Social science is one of the branches of science, devoted to the study of societies and the relationships among individuals within those societies. The term was formerly used to refer to the field of sociology, the original "science of so ...
models, particularly in
economics Economics () is the social science that studies the production, distribution, and consumption of goods and services. Economics focuses on the behaviour and interactions of economic agents and how economies work. Microeconomics anal ...
. ''Homo economicus'' is seen as "rational" in the sense that well-being as defined by the
utility function As a topic of economics, utility is used to model worth or value. Its usage has evolved significantly over time. The term was introduced initially as a measure of pleasure or happiness as part of the theory of utilitarianism by moral philosoph ...
is optimized given perceived opportunities. That is, the individual seeks to attain very specific and predetermined goals to the greatest extent with the least possible cost. Note that this kind of "rationality" does not say that the individual's actual goals are "rational" in some larger ethical, social, or human sense, only that they try to attain them at minimal cost. Only naïve applications of the ''Homo economicus'' model assume that this hypothetical individual knows what is best for their long-term physical and mental health and can be relied upon to always make the right decision for themself. See
rational choice theory Rational choice theory refers to a set of guidelines that help understand economic and social behaviour. The theory originated in the eighteenth century and can be traced back to political economist and philosopher, Adam Smith. The theory postula ...
and
rational expectations In economics, "rational expectations" are model-consistent expectations, in that agents inside the model are assumed to "know the model" and on average take the model's predictions as valid. Rational expectations ensure internal consistency i ...
for further discussion; the article on
rationality Rationality is the quality of being guided by or based on reasons. In this regard, a person acts rationally if they have a good reason for what they do or a belief is rational if it is based on strong evidence. This quality can apply to an ab ...
widens the discussion. As in social science, these assumptions are at best approximations. The term is often used derogatorily in academic literature, perhaps most commonly by
sociologists This is a list of sociologists. It is intended to cover those who have made substantive contributions to social theory and research, including any sociological subfield. Scientists in other fields and philosophers are not included, unless at lea ...
, many of whom tend to prefer structural explanations to ones based on rational action by individuals. The use of the Latin form ''Homo economicus'' is certainly long established; Persky traces it back to Pareto (1906) but notes that it may be older. The English term ''economic man'' can be found even earlier, in John Kells Ingram's ''A History of Political Economy'' (1888). The ''
Oxford English Dictionary The ''Oxford English Dictionary'' (''OED'') is the first and foundational historical dictionary of the English language, published by Oxford University Press (OUP). It traces the historical development of the English language, providing a c ...
(O.E.D.)'' cites the use of ''Homo oeconomicus'' by C. S. Devas in his 1883 work ''The Groundwork of Economics'' in reference to Mill's writings, as one of a number of phrases that imitate the scientific name for the human species: According to the '' OED'', the human genus name ''Homo'' is Note that such forms should logically keep the capital for the "genus" name—''i.e.,'' ''Homo economicus'' rather than ''homo economicus.'' Actual usage is inconsistent.
Amartya Sen Amartya Kumar Sen (; born 3 November 1933) is an Indian economist and philosopher, who since 1972 has taught and worked in the United Kingdom and the United States. Sen has made contributions to welfare economics, social choice theory, economi ...
has argued there are grave pitfalls in assuming that rationality is limited to selfish rationality. Economics should build into its assumptions the notion that people can give credible commitments to a course of conduct. He demonstrates the absurdity with the narrowness of the assumptions by some economists with the following example of two strangers meeting on a street.


Criticisms

''Homo economicus'' bases its choices on a consideration of its own personal "utility function". Consequently, the ''Homo economicus'' assumptions have been criticized not only by economists on the basis of logical arguments, but also on empirical grounds by cross-cultural comparison. Economic anthropologists such as
Marshall Sahlins Marshall David Sahlins ( ; December 27, 1930April 5, 2021) was an American cultural anthropologist best known for his ethnographic work in the Pacific and for his contributions to anthropological theory. He was the Charles F. Grey Distinguishe ...
,
Karl Polanyi Karl Paul Polanyi (; hu, Polányi Károly ; 25 October 1886 – 23 April 1964),''Encyclopædia Britannica'' (Chicago: Encyclopædia Britannica Inc. 2003) vol 9. p. 554 was an Austro-Hungarian economic anthropologist and politician, best known ...
,
Marcel Mauss Marcel Mauss (; 10 May 1872 – 10 February 1950) was a French sociologist and anthropologist known as the "father of French ethnology". The nephew of Émile Durkheim, Mauss, in his academic work, crossed the boundaries between sociology and ...
and Maurice Godelier have demonstrated that in traditional societies, choices people make regarding production and exchange of goods follow patterns of reciprocity which differ sharply from what the ''Homo economicus'' model postulates. Such systems have been termed
gift economy A gift economy or gift culture is a system of exchange where Anthropological theories of value, valuables are not sold, but rather given without an explicit agreement for immediate or future rewards. Social norms and customs govern giving a gift ...
rather than market economy. Criticisms of the ''Homo economicus'' model put forward from the standpoint of ethics usually refer to this traditional ethic of kinship-based reciprocity that held together traditional societies. Philosophers
Amartya Sen Amartya Kumar Sen (; born 3 November 1933) is an Indian economist and philosopher, who since 1972 has taught and worked in the United Kingdom and the United States. Sen has made contributions to welfare economics, social choice theory, economi ...
and
Axel Honneth Axel Honneth (; ; born 18 July 1949) is a German philosopher who is the Professor for Social Philosophy at Goethe University Frankfurt and the Jack B. Weinstein Professor of the Humanities in the department of philosophy at Columbia University ...
are noted for their criticisms of the normative assumptions made by the self-interested utility function. Economists
Thorstein Veblen Thorstein Bunde Veblen (July 30, 1857 – August 3, 1929) was a Norwegian-American economist and sociologist who, during his lifetime, emerged as a well-known critic of capitalism. In his best-known book, ''The Theory of the Leisure Class'' ...
,
John Maynard Keynes John Maynard Keynes, 1st Baron Keynes, ( ; 5 June 1883 – 21 April 1946), was an English economist whose ideas fundamentally changed the theory and practice of macroeconomics and the economic policies of governments. Originally trained in ...
, Herbert A. Simon, and many of the
Austrian School The Austrian School is a heterodox school of economic thought that advocates strict adherence to methodological individualism, the concept that social phenomena result exclusively from the motivations and actions of individuals. Austrian scho ...
criticise ''Homo economicus'' as an actor with too great an understanding of macroeconomics and economic forecasting in his decision making. They stress
uncertainty Uncertainty refers to epistemic situations involving imperfect or unknown information. It applies to predictions of future events, to physical measurements that are already made, or to the unknown. Uncertainty arises in partially observable ...
and
bounded rationality Bounded rationality is the idea that rationality is limited when individuals make decisions, and under these limitations, rational individuals will select a decision that is satisfactory rather than optimal. Limitations include the difficulty o ...
in the making of economic decisions, rather than relying on the rational man who is fully informed of all circumstances impinging on his decisions. They argue that perfect knowledge never exists, which means that all economic activity implies risk. Austrian economists rather prefer to use as a model tool the '' Homo agens''. Empirical studies by
Amos Tversky Amos Nathan Tversky ( he, עמוס טברסקי; March 16, 1937 – June 2, 1996) was an Israeli cognitive and mathematical psychologist and a key figure in the discovery of systematic human cognitive bias and handling of risk. Much of his ...
questioned the assumption that investors are rational. In 1995, Tversky demonstrated the tendency of investors to make risk-averse choices in gains, and risk-seeking choices in losses. The investors appeared as very risk-averse for small losses but indifferent for a small chance of a very large loss. This violates economic rationality as usually understood. Further research on this subject, showing other deviations from conventionally defined economic rationality, is being done in the growing field of experimental or
behavioral economics Behavioral economics studies the effects of psychological, cognitive, emotional, cultural and social factors on the decisions of individuals or institutions, such as how those decisions vary from those implied by classical economic theory. ...
. Some of the broader issues involved in this criticism are studied in
decision theory Decision theory (or the theory of choice; not to be confused with choice theory) is a branch of applied probability theory concerned with the theory of making decisions based on assigning probabilities to various factors and assigning numerical ...
, of which
rational choice theory Rational choice theory refers to a set of guidelines that help understand economic and social behaviour. The theory originated in the eighteenth century and can be traced back to political economist and philosopher, Adam Smith. The theory postula ...
is only a subset. Behavioral economists
Richard Thaler Richard H. Thaler (; born September 12, 1945) is an American economist and the Charles R. Walgreen Distinguished Service Professor of Behavioral Science and Economics at the University of Chicago Booth School of Business. In 2015, Thaler was p ...
and
Daniel Kahneman Daniel Kahneman (; he, דניאל כהנמן; born March 5, 1934) is an Israeli-American psychologist and economist notable for his work on the psychology of judgment and decision-making, as well as behavioral economics, for which he was award ...
have criticized the notion of economic agents possessing stable and well-defined preferences that they consistently act upon in a self-interested manner. Using insights from psychological experiments found explanations for anomalies in economic decision-making that seemed to violate rational choice theory. Writing a column in the Journal of Economic Perspectives under the title ''Anomalies'', Thaler wrote features on the many ways observed economic behavior in markets deviated from theory. One such anomaly was the endowment effect by which individual preferences are framed based on reference positions (Kahneman et al., 1990). In an experiment in which one group was given a mug and the other was asked how much they were willing to pay (WTP) for the mug, it was found that the price that those endowed with the mug where willingness to accept (WTA) greatly exceeded that of the WTP. This was seen as falsifying the
Coase theorem In law and economics, the Coase theorem () describes the economic efficiency of an economic allocation or outcome in the presence of externalities. The theorem states that if trade in an externality is possible and there are sufficiently low tra ...
in which for every person the WTA equals the WTP that is the basis of the
efficient-market hypothesis The efficient-market hypothesis (EMH) is a hypothesis in financial economics that states that asset prices reflect all available information. A direct implication is that it is impossible to "beat the market" consistently on a risk-adjusted bas ...
. From this they argued the endowment effect acts on us by making it painful for us to give up the endowment. Kahneman also argued against the rational-agent model in which agents make decisions with all of the relevant context including weighing all possible future opportunities and risks. Evidence supports the claim that decisions are often made by "narrow framing" with investors making portfolio decisions in isolation from their entire portfolio (Nicholas Barberis et al., 2003).
Shlomo Benartzi Shlomo Benartzi is an American behavioral economist, known for his research on retirement savings and the Save More Tomorrow nudge. Benartzi is currently a Professor Emeritus at the UCLA Anderson School of Management in Los Angeles, California. ...
and Thaler found that investors also tended to use unreasonable time periods in evaluating their investments. In Kahneman-Tversky’s criticism of the Homo Economicus model, many mainstream economists had utilised deductive logic to further progress the Homo Economicus idea as opposed to Daniel Kahneman and Amos Tversky in which they had applied inductive logic. Further findings of their experiments that opposed Homo Economicus had found that individuals will constantly adjust their choices according to changes in their income and market prices. Furthermore, Kahneman and Tversky had conducted experiments exploring prospect theory where results from several experiments concluded that individuals will generally put higher importance on avoiding loss over making a gain. Other critics of the ''Homo economicus'' model of humanity, such as
Bruno Frey Bruno S. Frey (born 4 May 1941 in Basel, Switzerland) is a Swiss economist and visiting professor for Political Economy at the University of Basel. Frey's research topics include Political economy and Happiness economics, with his published wor ...
, point to the excessive emphasis on extrinsic motivation (rewards and punishments from the social environment) as opposed to intrinsic motivation. For example, it is difficult if not impossible to understand how ''Homo economicus'' would be a hero in war or would get inherent pleasure from craftsmanship. Frey and others argue that too much emphasis on rewards and punishments can "crowd out" (discourage) intrinsic motivation: paying a boy for doing household tasks may push him from doing those tasks "to help the family" to doing them simply for the reward. Another weakness is highlighted by economic sociologists and anthropologists, who argue that ''Homo economicus'' ignores an extremely important question, i.e. the origins of tastes and the parameters of the utility function by social influences, training, education, and the like. The exogeneity of tastes (preferences) in this model is the major distinction from '' Homo sociologicus,'' in which tastes are taken as partially or even totally determined by the societal environment (see below). Further critics, learning from the broadly defined psychoanalytic tradition, criticize the ''Homo economicus'' model as ignoring the inner conflicts that real-world individuals suffer, as between short-term and long-term goals (''e.g.,'' eating chocolate cake and losing weight) or between individual goals and societal values. Such conflicts may lead to "irrational" behavior involving inconsistency, psychological paralysis, neurosis, and psychic pain. Further irrational human behaviour can occur as a result of habit, laziness, mimicry and simple obedience. The emerging science of "
neuroeconomics Neuroeconomics is an interdisciplinary field that seeks to explain human decision-making, the ability to process multiple alternatives and to follow through on a plan of action. It studies how economic behavior can shape our understanding of t ...
" suggests that there are serious shortcomings in the conventional theories of economic rationality. Rational economic decision making has been shown to produce high levels of
cortisol Cortisol is a steroid hormone, in the glucocorticoid class of hormones. When used as a medication, it is known as hydrocortisone. It is produced in many animals, mainly by the '' zona fasciculata'' of the adrenal cortex in the adrenal g ...
,
epinephrine Adrenaline, also known as epinephrine, is a hormone and medication which is involved in regulating visceral functions (e.g., respiration). It appears as a white microcrystalline granule. Adrenaline is normally produced by the adrenal glands and ...
and
corticosteroid Corticosteroids are a class of steroid hormones that are produced in the adrenal cortex of vertebrates, as well as the synthetic analogues of these hormones. Two main classes of corticosteroids, glucocorticoids and mineralocorticoids, are inv ...
s, associated with elevated levels of stress. It seems that the dopaminic system is only activated upon achieving the reward, and otherwise the "pain" receptors, particularly in the
prefrontal cortex In mammalian brain anatomy, the prefrontal cortex (PFC) covers the front part of the frontal lobe of the cerebral cortex. The PFC contains the Brodmann areas BA8, BA9, BA10, BA11, BA12, BA13, BA14, BA24, BA25, BA32, BA44, BA45, BA ...
of the left hemisphere of the brain show a high level of activation.
Serotonin Serotonin () or 5-hydroxytryptamine (5-HT) is a monoamine neurotransmitter. Its biological function is complex and multifaceted, modulating mood, cognition, reward, learning, memory, and numerous physiological processes such as vomiting and va ...
and
oxytocin Oxytocin (Oxt or OT) is a peptide hormone and neuropeptide normally produced in the hypothalamus and released by the posterior pituitary. It plays a role in social bonding, reproduction, childbirth, and the period after childbirth. Oxytoc ...
levels are minimised, and the general immune system shows a level of suppression. Such a pattern is associated with a generalised reduction in the levels of trust. Unsolicited "gift giving", considered irrational from the point of view of ''Homo economicus'', by comparison, shows an elevated stimulation of the pleasure circuits of the whole brain, reduction in the levels of stress, optimal functioning of the immune system, reduction in cortico-steroids and epinephrine and cortisol, activation of the
substantia nigra The substantia nigra (SN) is a basal ganglia structure located in the midbrain that plays an important role in reward and movement. ''Substantia nigra'' is Latin for "black substance", reflecting the fact that parts of the substantia nigra ap ...
, the
striatum The striatum, or corpus striatum (also called the striate nucleus), is a nucleus (a cluster of neurons) in the subcortical basal ganglia of the forebrain. The striatum is a critical component of the motor and reward systems; receives gluta ...
and the
nucleus accumbens The nucleus accumbens (NAc or NAcc; also known as the accumbens nucleus, or formerly as the ''nucleus accumbens septi'', Latin for "nucleus adjacent to the septum") is a region in the basal forebrain rostral to the preoptic area of the hyp ...
(associated with the
placebo effect A placebo ( ) is a substance or treatment which is designed to have no therapeutic value. Common placebos include inert tablets (like sugar pills), inert injections (like Saline (medicine), saline), sham surgery, and other procedures. In general ...
), all associated with the building of social trust.
Mirror neuron A mirror neuron is a neuron that fires both when an animal acts and when the animal observes the same action performed by another. Thus, the neuron "mirrors" the behavior of the other, as though the observer were itself acting. Such neurons ha ...
s result in a win-win
positive sum game Positive is a property of positivity and may refer to: Mathematics and science * Positive formula, a logical formula not containing negation * Positive number, a number that is greater than 0 * Plus sign, the sign "+" used to indicate a posi ...
in which the person giving the gift receives a pleasure equivalent to the person receiving it. This confirms the findings of anthropology which suggest that a "
gift economy A gift economy or gift culture is a system of exchange where Anthropological theories of value, valuables are not sold, but rather given without an explicit agreement for immediate or future rewards. Social norms and customs govern giving a gift ...
" preceded the more recent market systems where win-lose or risk-avoidance lose-lose calculations apply.


Responses

Economists tend to disagree with these critiques, arguing that it may be relevant to analyze the consequences of enlightened
egoism Egoism is a philosophy concerned with the role of the self, or , as the motivation and goal of one's own action. Different theories of egoism encompass a range of disparate ideas and can generally be categorized into descriptive or normativ ...
just as it may be worthwhile to consider altruistic or social behavior. Others argue that we need to understand the consequences of such narrow-minded greed even if only a small percentage of the population embraces such motives. Free riders, for example, would have a major negative impact on the provision of public goods. However, economists' supply and demand predictions might obtain even if only a significant minority of market participants act like ''Homo economicus''. In this view, the assumption of ''Homo economicus'' can and should be simply a preliminary step on the road to a more sophisticated model. Yet others argue that ''Homo economicus'' is a reasonable approximation for behavior within market institutions, since the individualized nature of human action in such social settings encourages individualistic behavior. Not only do market settings encourage the application of a simple cost-benefit calculus by individuals, but they reward and thus attract the more individualistic people. It can be difficult to apply social values (as opposed to following self-interest) in an extremely competitive market; a company that refuses to pollute, for example, may find itself bankrupt. Defenders of the ''Homo economicus'' model see many critics of the dominant school as using a
straw man A straw man (sometimes written as strawman) is a form of argument and an informal fallacy of having the impression of refuting an argument, whereas the real subject of the argument was not addressed or refuted, but instead replaced with a false o ...
technique. For example, it is common for critics to argue that real people do not have cost-less access to infinite information and an innate ability to instantly process it . However, in advanced-level theoretical economics, scholars have found ways of addressing these problems, modifying models enough to more realistically depict real-life decision-making. For example, models of individual behavior under
bounded rationality Bounded rationality is the idea that rationality is limited when individuals make decisions, and under these limitations, rational individuals will select a decision that is satisfactory rather than optimal. Limitations include the difficulty o ...
and of people suffering from
envy Envy is an emotion which occurs when a person lacks another's quality, skill, achievement, or possession and either desires it or wishes that the other lacked it. Aristotle defined envy as pain at the sight of another's good fortune, stirred b ...
can be found in the literature. It is primarily when targeting the limiting assumptions made in constructing undergraduate models that the criticisms listed above are valid. These criticisms are especially valid to the extent that the professor asserts that the simplifying assumptions are true or uses them in a propagandistic way. The more sophisticated economists are quite conscious of the empirical limitations of the ''Homo economicus'' model. In theory, the views of the critics can be combined with the ''Homo economicus'' model to attain a more accurate model.


Perspectives

According to Sergio Caruso, when talking of ''Homo economicus'', one should distinguish between the purely "methodological" versions, aimed at practical use in the economic sphere (e.g. economic calculus), and the" anthropological" versions, more ambitiously aimed at depicting a certain type of man (supposed to be actually existing), or even human nature in general. The former, traditionally founded on a merely speculative psychology, have proved unrealistic and frankly wrong as descriptive models of economic behaviour (therefore not applicable for normative purposes either); however, they are liable to be corrected resorting to the new empirically based economic psychology, which turns quite other than the philosophers' psychology that economists have used until yesterday. Among the latter (i.e. the anthropological versions), one can make a further distinction between the weak versions, more plausible, and the strong ones, irreparably ideological. Depicting different types of "economic man" (each depending on the social context) is in fact possible with the help of
cultural anthropology Cultural anthropology is a branch of anthropology focused on the study of cultural variation among humans. It is in contrast to social anthropology, which perceives cultural variation as a subset of a posited anthropological constant. The portma ...
, and
social psychology Social psychology is the scientific study of how thoughts, feelings, and behaviors are influenced by the real or imagined presence of other people or by social norms. Social psychologists typically explain human behavior as a result of the ...
(a branch of psychology economists have strangely ignored), if only those types are contrived as socially and/or historically determined abstractions (such as Weber's, Korsch's, and Fromm's concepts of ''Idealtypus'', "historical specification", and "social character"). Even a Marxist theoretician such as Gramsci—reminds Caruso—admitted of the ''Homo economicus'' as a useful abstraction on the ground of economic theory, provided that we grant there be as many ''homines oeconomici'' as the modes of production. On the contrary, when one concept of ''Homo economicus'' claims to grasp the eternal essence of what is human, at the same time putting aside all other aspects of human nature (such as ''Homo faber'', ''Homo loquens'', ''Homo ludens'', ''Homo reciprocans'', and so on), then the concept leaves the field of good philosophy, not to speak of social science, and is ready to enter a political doctrine as the most dangerous of its ideological ingredients.


''Homo sociologicus''

Comparisons between economics and sociology have resulted in a corresponding term ''Homo sociologicus'' (introduced by German sociologist
Ralf Dahrendorf Ralf Gustav Dahrendorf, Baron Dahrendorf, (1 May 1929 – 17 June 2009) was a German-British sociologist, philosopher, political scientist and liberal politician. A class conflict theorist, Dahrendorf was a leading expert on explaining and a ...
in 1958), to parody the image of human nature given in some sociological models that attempt to limit the social forces that determine individual tastes and social values. (The alternative or additional source of these would be biology.) Hirsch ''et al.'' say that ''Homo sociologicus'' is largely a ''
tabula rasa ''Tabula rasa'' (; "blank slate") is the theory that individuals are born without built-in mental content, and therefore all knowledge comes from experience or perception. Epistemological proponents of ''tabula rasa'' disagree with the doctri ...
'' upon which societies and cultures write values and goals; unlike ''economicus'', ''sociologicus'' acts not to pursue selfish interests but to fulfill social rolesHirsch, Paul, Stuart Michaels and Ray Friedman. 1990. "Clean Models vs. Dirty Hands: Why Economics Is Different from Sociology." In Sharon Zukin and Paul DiMaggio, eds. ''Structures of Capital: The Social Organization of the Economy'': 39–56. Cambridge; New York and Melbourne: Cambridge University Press, 1990 () (though the fulfillment of social roles may have a selfish rationale—e.g. politicians or
socialite A socialite is a person from a wealthy and (possibly) aristocratic background, who is prominent in high society. A socialite generally spends a significant amount of time attending various fashionable social gatherings, instead of having tradit ...
s). This "individual" may appear to be all society and no individual.


See also


Notes


References

* J.S. Mill, 'On the Definition of Political Economy, and on the Method of Investigation Proper to It' (1836) London and Westminster Review * J.S. Mill, ''Essays on Some Unsettled Questions of Political Economy'' (2nd ed. Longmans, Green, Reader & Dyer 1874)
read online
* A.K. Sen, ‘Rational Fools: A Critique of the Behavioural Foundations of Economic Theory’ (1977) 6 Philosophy and Public Affairs 317


External links


Self-Interest, Homo Islamicus and Some Behavioral Assumptions in Islamic Economics and Finance
(DOC) by Dr. Mohammad Omar Farooq
Requiem for Homo Economicus
Edward J. O'Boyle, Mayo Research Institute, a refutation of reductionism in
free will Free will is the capacity of agents to choose between different possible courses of action unimpeded. Free will is closely linked to the concepts of moral responsibility, praise, culpability, sin, and other judgements which apply only to ac ...
using tenets of
natural law Natural law ( la, ius naturale, ''lex naturalis'') is a system of law based on a close observation of human nature, and based on values intrinsic to human nature that can be deduced and applied independently of positive law (the express enacte ...
{{Authority control Behavioral economics Economic methodology Latin philosophical phrases Rational choice theory Game theory