Who is Homo Economicus and What is Wrong with Her?

Abstract: Economists take a very counterintuitive view of human behaviour, reducing life to a single-minded pursuit of maximising either profit or pleasure. The current article critiques the two major theories of human behaviour that have dominated Economics for a century, pointing to the accumulating evidence that refutes them.

 

The Homo economicus model or how economists see the person

At its most basic Economics is about human choice. In our lives we have to make choices as to how to allocate our limited resources to best satisfy our unlimited desires. Economists try to model human behaviour in order to be able to predict what choices we make in what circumstances.

Currently, the model most prevalent in Economics, which aims at describing how a human person makes choices, is the model of Homo economicus, economic man. According to this model all people are reduced to a single, representative (or ‘average’) human being who has only two traits: she is rational, and she is profit seeking.

In this article I describe two versions of the Homo economicus model and argue that both of them have major flaws. The first version is empirically proven false, while the second is too general, and for that reason can neither be proven nor disproven by experiment. Both versions are too crude and simplistic to be able to describe something as complex as human choice.

Before exploring the two, rather simplistic, conceptions economists have of their fellow human beings, I must start with a brief discussion of rationality. That is because rationality, in one form or another, lies at the heart of all human choice. That is to say, every person acts for reasons, regardless of how ‘good’ or ‘bad’ those reasons might be.