Homo Economicus

… a core concept used in Policy Analysis and Process and Atlas101

Concept description

Wikipedia describes the term homo economicus, or economic man, as a “portrayal of humans as agents who are consistently rational and narrowly self-interested, and who usually pursue their subjectively-defined ends optimally.”

Wikipedia goes on to say:

“The notion of “homo economicus” is often used by non-economists to critique an economic approach. There are distinct concepts involved: the preferences that individuals have among outcomes; and the processes that individuals use to make decisions. The question whether individuals are in fact able to make the best choices, given their preferences, leads to the economic definition of rationality, or the so-called “rational economic man”. This concept of rationality does not restrict what sort of preferences are admissible.”

Investopedia (reference below) notes that:

“Certain economic models have traditionally relied on the assumption that humans are rational and will attempt to maximize their utility for both monetary and non-monetary gains. Modern behavioral economists and neuroeconomists, however, have demonstrated that human beings are, in fact, not rational in their decision making, and argue a “more human” subject (that makes somewhat predictable irrational decisions) would provide a more accurate tool for modeling human behavior.

“Daniel Kahneman, an Israeli-American psychologist and Nobel laureate, and Amos Tversky, a leading expert in judgment and human decision making, founded the field of behavioral economists with their 1979 paper, “Prospect Theory: An Analysis of Decision under Risk.” Kahneman and Tversky researched human risk aversion, finding that people’s attitudes regarding risks associated with gains are different from those concerning losses. Homo economicus and the idea that humans always act rationally, is challenged by risk aversion. Kahneman and Tversky, for example, found that if given a choice between definitely getting $1,000 or having a 50% chance of getting $2,500, people are more likely to accept the $1,000.”

See also Behavioural Economics.

Sources

Wikipedia, Homo economicus, at https://en.wikipedia.org/wiki/Homo_economicus, accessed 31 August 2018.

Investopedia, Homo economicus, at https://www.investopedia.com/terms/h/homoeconomicus.asp, accessed 31 August 2018..

Atlas topic, subject, and course

Institutions and the Policy Process (core topic) in Policy Analysis and Process and Atlas101.

Page created by: Alec Wreford and Ian Clark, last modified on 31 August 2018.

Image: UCL, Finance comportementale : de «l’homo economicus à l’homo sapiens» at https://uclouvain.be/fr/chercher/actualites/finance-comportementale-de-l-homo-economicus-a-l-homo-sapiens.html, accessed 31 August 2018.