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Meet Homo Economicus

A humane look at the field

By Oliver W. Kim

Economics has long had a reputation for intellectual arrogance. But few of economics’ conceits raise the ire of its critics more than Homo economicus, the rationally self-interested actor lurking at the core of mainstream economic theory. Indeed, Homo economicus has become a favorite whipping boy for critics of the dismal science. In taking over this column from the superb stewardship of Jonathan Zhou, I thought it would be appropriate to examine its controversial namesake.

Our subject is a selfish, single-minded creature: her sole concern is the minimization of cost and the maximization of her own utility. Economists assume that she is fully informed at all times, makes no mistakes, and is able to instantaneously make complex optimization decisions.

With these outlandish assumptions, you can probably see why critiques of Homo economicus come from all angles. Economists since Keynes have argued that total rationality and complete knowledge are poor assumptions: real people have limited time to process information and make optimal choices; in most situations, a rough guess is good enough. Psychologists and behavioral economists criticize Homo economicus’s selfish motivations: laboratory experiments have shown that people care about fairness and occasionally even act altruistically.

All of these criticisms have their merits. But here’s a confession: Homo economicus is at most a useful fiction—in economic jargon, a model. Human beings do not actually think like Scrooge McDuck, but, in approximation and in aggregate, we often behave like we do. Just as maps simplify the terrain, economic models shed extraneous detail to focus on the features that are analytically relevant.

This simplification makes complex problems tractable. Consider the humble swai fish sitting on your dining hall plate. The chain of economic relationships necessary that takes this fish from Vietnamese farmers on the Mekong to the HUDS cooks who prepare it is an immense feat of social organization. Starting our analysis by invoking altruism or the behavioral idiosyncrasies of Vietnamese farmers quickly gets us lost in the theoretical weeds. But make the simple assumption of rational self-interest, and the toil and effort that goes into producing those little beige fillets make sense (at least for those who don’t have to eat it). To borrow a phrase, it is not from the benevolence of the swai farmer, the truck driver, or the HUDS dining hall worker that we expect our dinner, but from their regard to their own self-interest.

The utility of Homo economicus is not limited to money and product markets. One of the major contributions of the Nobel Prize-winning economist Gary Becker, who died earlier this year, was to apply the logic of Homo economicus to the phenomenon of crime. As Becker points out, people commit crimes not necessarily because they are morally deficient, but simply because the benefits of crime outweigh the costs. Society can modulate the level of crime by altering the incentives; for instance, as the probability of conviction increases, Becker’s model predicts that crime will fall. Though simplistic, this model is far superior to the categorical view that all criminals are moral failures. In fact, this analytical tool so often accused of being dehumanizing can serve as a conduit for empathy. It turns out that there may be a bit of Scrooge McDuck in all of us.

The trick with Homo economicus is distinguishing the map from the terrain. Homo economicus is a tool for specific situations, just one page in our analytical guidebook. Invoking her requires a curious mix of both ambition and humility. We must be bold enough to use this imperfect tool to attempt to describe our world, but we must also acknowledge that what we are describing is at best a crude approximation.

It is in this spirit of humble curiosity that I wish to begin this column.

Oliver W. Kim ’16, a Crimson editorial writer, is an economics concentrator living in Leverett House.  

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