What is the definition of Homo Economicus?
The term “Homo Economicus” derives from the Latin words for “economic man” and is
a linguistic word play on the scientific name for humans,
“Homo Sapiens” which also means “wise man”
in Latin.
https://tinyurl.com/nsj8hc7sWhat does it mean?
To understand the meaning of
Homo Economicus we must understand its origins. Many philosophers and
economists advocated for the use of rational self-interest, such as Adam Smith,
Jeremy Bentham, Milton Friedman, and most notably John Stuart Mill. The concept
can be traced back to an essay written by Mill in 1836, titled “On the Definition of Political Economy and on the
Method of Investigation Proper to It.” In that
essay, he describes a hypothetical being who desires to acquire a significant
amount of wealth and can assess the best possible way to achieve it.
Essentially, Homo Economicus pursue their self-interest based on their own
reasoning.1
For instance; a person is
looking for an iPhone to buy. In the first market, the iPhone is sold for 700$,
and in the second market, it’s sold for 600$. The theory assumes a person
is going to buy the iPhone from the second market. Because then, they’d be
saving 100$, which would then make that a rational decision.2
Characteristics of a Homo Economicus
Some economic theories assume
that human beings will take advantage of resources that can provide them with
both financial and non-financial gains.
Another key characteristic is
the pursuit of maximum profits. As well as the boundless intellectual ability,
knowledge, and perceived consistency. Their decision-making is impartial and
strictly objective. They utilize all available data to make informed decisions.
3
These characteristics put them
in a position to make judgments that permit them to navigate the system to
reach their goal in the most effective way possible.
Criticisms
Many economists were against
this idea. For example, Karl Polanyi an Austro-Hungarian economic
anthropologist disagreed with the notion that people make choices based on
their self-interest but rather based on reciprocity, especially in traditional
societies. The argument here is that reciprocity is a key element that holds
traditional societies together. This system is called the gift system it
pertains to donations, alms giving (the practice of
giving money or food to poor people), and many other things.4
A real-life example of this is
donations made to the mosque, which are a common practice in Islam. In fact,
mosques rely on the generosity of their members and donors to fund their
operations and provide services to the community. Aside from its religious
aspect, it promotes good deeds within the community.
Other criticisms of Homo
Economicus are its narrow self-interest, inconsistent rationality, and data
biases which many humans tend to miss.
Final thoughts
Homo Economicus provides a
beneficial perspective on economics. As it explains human behavior in an
economic context. However, as discussed above, it overlooks a lot of aspects
including psychology, and inconsistencies in human behavior which are a result
of conflicts we go through in our daily lives. Ultimately, by broadening our
view of human behavior, we can create more accurate and effective economic
policies that better serve the needs of society as a whole.
1 https://www.investopedia.com/terms/h/homoeconomicus.asp
2 https://www.wallstreetmojo.com/homo-economicus/#h-advantages
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