Homo economicus

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{{Economics}}
{{cquote|In contrast to the [[Empiricism|empirically]] rich forms of economic inquiry, much work in neoclassical economics is instead concerned with the largely theoretical analysis of how markets would work if they were populated with individuals endowed with perfect [[Rationalism|rationality]]. In other words, this work concerns creatures of fantasy. We might be tempted to classify these areas of economics as science fiction. Alternatively, we might think that this brand of economics does not tell us how the world is; instead, it tells us [[Moralistic fallacy|how the world ought to be, if only people would think straight]]. Both reactions suggest a gulf between neoclassical economics and the typical practice of [[science]].|||{{wpl|Tim Lewens||,}} ''The Meaning of Science: A Pelican Introduction''<ref>''The Meaning of Science: A Pelican Introduction'', {{wpl|Tim Lewens||,}} 2015, ISBN 978-0-141-97742-3. Page 50-51.</ref>}}
'''''Homo economicus'''''<ref group=note>Yes, classicists, we know it should be "''Homo œconomicus''", but we didn't create the term.</ref> is the theoretical ideal of the "rational" person, often used in economics and political science as part of the precise model making and "[[physics envy]]" featured within those disciplines. The idea is often derided, however, with critics claiming that people are mostly ''[[irrational]]''. However, this is probably too much of a simplification of why ''homo economicus'' isn't an accurate representation of reality. In economics, rationality merely means that people follow easy to model choices; if a person prefers A to B, and B to C, they will then prefer A to C. Most theories do not expect much more from people, and in fact several theories have been created to explain how the lack of information can lead a rational person to making an irrational choice. 

[[Chicago school]]ers are known for a near-mystical belief in ''homo economicus'', which ironically separates them from the [[Austrian school|Austrians]] who have [[Stopped clock|already abandoned]] this concept as backward. Two decades into ad-hoc, [[Empiricism|empirically]] [[PIDOOMA|dubious]] justifications for why it is reasonable to continue using ''Homo Economicus'' and the so-called "Real Business Cycle" model, even the educated public has come to realize that their school is dependent upon what is akin to [[adding epicycles]] [[geocentrism|to epicycles]].

This theory is also very important in voter choice in [[politics]]; however, the incentives in voting are much harder to quantify.

==Problems with the "rational" man==
{{cquote|...the Economic Man, whose every action is prompted by the single spur of selfish advantage and directed to the single end of monetary gain.|||A. P. Herbert, ''Fardell v. Potts'' (Misleading Cases)}}
{{cquote|[[Addiction]] is a major challenge to the theory of rational behavior.|||[[Chicago school]]ers {{wpl|Gary Becker}} and {{wpl|Kevin M. Murphy}} in a [[stopped clock]] moment<ref>Becker, Gary S., and Kevin M. Murphy. 1988. "A Theory of Rational Addiction." ''Journal of Political Economy'' 96 (August): p. 695</ref>}}

One problem with this theory is that one object may not be objectively better than another. Take cars, for example: if car A is more comfortable than car B, and car B is more efficient than car A, which is the better car? A very careful person could list the qualities of each car, assign each a value, and add them up to decide which is better.<ref group=note>Engineers do this sort of thing all the time, but engineers are total nerds.</ref> Most people (assuming they can afford both cars) will decide based on a more instinctual process,<ref group=note>I.e. "I just like car A better, even if I'll have to pay a little more for gas."</ref> which may or may not be a rational decision. The A > B, B > C, therefore C > A might also just be one of those irrational things that real people engage in and can't quite explain.

Rationality in decision making is affected greatly by a lack of information. A rational decision made on incomplete information may not be the same decision made with every aspect of the problem known. This is what happens when you buy something online and promptly frown when you open up the package.

But there is also the brute irrational side; the economic man is prone to emotional purchasing, such as impulse buying. The candy and gadgets at the front register<ref group=note>That's a till for you goofy kids across the ocean.</ref> are probably not the ideal rational purchase, but people purchase them anyway. [[Advertising]] also affects emotional purchasing, as does popularity<ref group=note>Name brand clothing isn't usually functionally good enough to justify the increase in price over off brands, for example.</ref> and luxury items.<ref group=note>For certain items, such as Rolex watches and high-end cars, even the laws of supply and demand break down.</ref>

Another inescapable problem is that while it is conceivable to assume economic agents can pick the optimal combination if there are very few options, things turn out absurd pretty fast if numbers increase. In the words of Steven Keen:

{{quotebox|Consider, for example, your regular visit to a supermarket. The typical supermarket has between 10,000 and 50,000 items, but let’s segment them into just 100 different groups. How many different shopping trolleys could you fill if you limited your decision to simply whether to buy or not buy one item from each group? You would be able to fill two to the power of one hundred shopping trolleys with different combinations of these goods: that’s 1,267,650,600,228,229,401,496,703,205,376 trolleys in total, or in words over 1,000 million trillion trillion shopping trolleys. If you could work out the utility you gained from each trolley at a rate of 10 trillion trolleys per second, it would take you 100 billion years to locate the optimal one. Obviously, you don’t do that when you go shopping.<ref>''Debunking Economics - Revised and Extended edition: The naked emperor dethroned?'', Steven Keen, 2011, p. 88.</ref> }} 

The field of [[Behavioral economics|behavioral economics]] takes the side of sanity (i.e. actual empirical data on decision-making) and scraps the concept of ''homo economicus'' entirely, assuming some amount of irrationality and attempting to identify where rational thinking fails and [[List of cognitive biases|what mistakes are common enough to be predictable]].

==Notes==
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==References==
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[[Category:Economics]]
[[Category:Latin phrases]]

Categories: Economics, Latin phrases