Homo economicus

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AKA Economic Man. The idea that humans are rational, economic maximizers. A common, simplifying assumption in most economic models, also known as economic rationality. It is also commonly agreed that this assumption is false. Behavioral studies with the Ultimatum Game are good evidence that it is false.

Links

A Job Is More Than a Paycheck [More...]
"In most of economic theory, a job isn't treated as something inherently valuable -- it's just a conduit through which money flows from employer to employee... To most people, the idea that jobs give people dignity and a sense of self-worth seems laughably obvious... But among economists, there remains a relentless unwillingness to consider the importance of dignity and social respect."
Behavioral Law and Economics (book)
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Brad DeLong Makes a Wishful Mistake [More...]
"The fact is that the foundations of standard microeconomic models envisage people as hedonistic sociopaths, and theorists prevent mayhem from breaking out in their models by the simple expedient of ignoring the possibility."
Economic Decision Making and Libertarianism [More...]
"Behavioural economics makes the central libertarian mantra of being ‘free to choose’ completely incoherent."
Homo economicus (Wikipedia) [More...]
"In economics, homo economicus, or economic human, is the concept in many economic theories of humans as rational and narrowly self-interested actors who have the ability to make judgments toward their subjectively defined ends. [....]"
Homo economicus on the Grand Tour, or, When Is a Lizard a Good Enough Dragon for Government Work? [More...]
A review of a neo-instititional economics textbook. "By the end of the book, while the modeling style hasn't changed at all, the original laissez-faire economy with a night-watchman state has been left completely behind, and we are contemplating competing forms of property rights in stateless societies..."
Misbehaving: The Making of Behavioral Economics (book)
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New Microeconomics: How Evolution Explains Resource Distribution [More...]
"Through years of schooling, mainstream economists are trained to ignore the obvious facts about human nature. The theories that economists learn make it impossible for them to understand human sociality."
People Actually Use Food Stamps to Buy More Food [More...]
This defies the standard rational economic model's "fungibility of targeted benefits", which treats all income as shiftable to other purposes. "Putting all your income into a single pile, and then spending out of that pile, is the rational thing to do. But it turns out that most human beings aren’t rational -- at least, not in this regard."
Rational != Self-interested [More...]
"Rationality and self-interest are two dimensions of behavior[...] You can pursue non-self-interested goals in rational or irrational ways, and you can pursue self-interested goals in rational or irrational ways."
Social Contract Theory (Cognitive Psychology) (2 links)
A modular and evolutionary view of human reasoning. "Modular" means that the theory explains performance in one specific content domain: social contracts (any social exchange.) Explains our apparent cheater detection algorithms. Not related to philosophical ideas of Social Contract.
The cost of racial bias in economic decisions [More...]
"It has been suggested that race bias in economic decisions may not occur in a market where discrimination is costly, but these findings provide the first evidence that this assumption is false." In other words, markets do not deter discrimination.
Ultimatum Game (Wikipedia) [More...]
"The ultimatum game is a game often played in economic experiments in which two players interact to decide how to divide a sum of money that is given to them. [....]"

Quotations

In most of economic theory, a job isn't treated as something inherently valuable -- it's just a conduit through which money flows from employer to employee... To most people, the idea that jobs give people dignity and a sense of self-worth seems laughably obvious... But among economists, there remains a relentless unwillingness to consider the importance of dignity and social respect.
Noah Smith, "A Job Is More Than a Paycheck"
The fact is that the foundations of standard microeconomic models envisage people as hedonistic sociopaths, and theorists prevent mayhem from breaking out in their models by the simple expedient of ignoring the possibility[...] Arrow, Debreu and co. rule out by hypothesis any interaction between agents other than impersonal market exchange, but the specification of the agents shows that they'd have no objection to pillage, or any preference for obtaining their consumption basket by peaceful truck, barter and commerce rather than fire, sword and fear.
Cosma Shalizi, "Brad DeLong Makes a Wishful Mistake"
Another example is the case of Nudge. The central point of this book is that people’s decisions are always pushed in a certain direction, either by advertising and packaging, by what the easiest or default choice is, by the way the choice is framed, or any number of other things. This completely destroys the idea of ‘free to choose’ – if people’s choices are rarely or never made neutrally, then one cannot be said to be ‘deciding for them’ any more than the choice was already ‘decided’ for them. The best conclusion is to push their choices in a ‘good’ direction (e.g. towards healthy food rather than junk). Nudging people isn’t a decision – they are almost always nudged. The question is the direction they are nudged in.
Unlearning Economics, "Economic Decision Making and Libertarianism"
If there were any methodological justice in the world, neo-classical economics should have been relegated to the scrap-yard of theories long ago. True, the Arrow-Debreu model is, as Stephen Maturin would say, the elegant mathematical theory of the world, but as a description of how economies work it is incredible in the worst sense. The most telling criticisms, all valid, fall into three clusters. The first, and to my mind the most compelling, has been urged with great force by Herbert Simon (among others): people simply are not perfectly rational, perfectly prescient utility maximizers, and they couldn't be even if they wanted to. Second, the kind of economy assumed by neo-classical theory is a very special and recent phenomenon, originating in particular countries in particular epochs, and while it has since spread from there and seems likely to conquer the globe, the neo-classical theory is restricted to the places where economic life is conducted in markets with unrestricted, alienable private property, so it is not a general theory of economic behavior, something deeply desirable. Third, even in the countries with the appropriate legal-institutional framework, perfect competition is exceedingly rare, very important parts of the economy are manifestly oligopolies, and certain kinds of competition are even legally prohibited by e.g. intellectual property laws.
Cosma Shalizi, "Homo economicus on the Grand Tour, or, When Is a Lizard a Good Enough Dragon for Government Work?"
For four decades, since my time as a graduate student, I have been preoccupied by the kinds of stories about the myriad ways in which people depart from the fictional creatures that populate economic models [...]. Compared to this fictional world of Econs, Humans do a lot of misbehaving, and that means that economic models make a lot of bad predictions, predictions that can have much more serious consequences than upsetting a group of students. Virtually no economists saw the financial crisis of 2007 – 08 coming, and worse, many thought that both the crash and its aftermath were things that simply could not happen.
Richard Thaler, "Misbehaving: The Making of Behavioral Economics"