"Standing alone, with money in his hand, ego in his heart, a calculator in his head and nature at his fee. He hates work, he loves luxury and he knows the price of everything"
- Kate Raworth
What are Homo economicus?
- Homo economicus, also called econs, are a theoretical model of the average person.
- They are an abstraction of real people, and are generally used for models for simplicity.
- A model that would include all the intricacies of people would be too complex to work with.
- The neoclassical theory has the assumption that people will always act rationally for their own interests.
- Homo economicus are believed to hate work, want money, make completely rational decisions and have perfect (true and fully encompassing) information, always act selfishly and do not consider the environment or others.
- In reality a lot of evidence suggests that humans are not as rational as the economic theory and its models suggest.
- People can act irrationally, and selflessly, based on different circumstances.
Example
If a Homo economicus wanted to buy a new mobile phone then they would:
- Know exactly what they wanted from the phone.
- Research the capabilities of all the different phones.
- Understand all the information that is provided.
- Be able to compare all the models.
- Know the prices of every phone on the market.
- Know how long each phone will last.
- Know everything they will need from their phone throughout the years of use.
- Be able to know which phone makes them the happiest.
Many of these are very difficult or outright impossible to know or research as a person.
Homo economicus vs Homo sapien
Econs (Non-existent)
- Are rational
- Have perfect information
- Are extremely intelligent, and able to perform complex calculations quickly.
- Seek to maximize their own utility.
- Make decisions based on their own self-interest.
- Have consistent preferences over time.
- Have full self-control.
- Are unbiased.
Humans
- Have bounded rationality.
- Have incomplete information.
- Are not as intelligent as Econs.
- Have limited ability to carry out complex calculations.
- Are social beings and make decisions in a social context
- Change their tastes over time.
- May have self-control issues.