Homo Economicus - Model

Model

Homo economicus is a term used for an approximation or model of Homo sapiens that acts to obtain the highest possible well-being for him or herself given available information about opportunities and other constraints, both natural and institutional, on his ability to achieve his predetermined goals. This approach has been formalized in certain social sciences models, particularly in economics.

Homo economicus is seen as "rational" in the sense that well-being as defined by the utility function is optimized given perceived opportunities. That is, the individual seeks to attain very specific and predetermined goals to the greatest extent with the least possible cost. Note that this kind of "rationality" does not say that the individual's actual goals are "rational" in some larger ethical, social, or human sense, only that he tries to attain them at minimal cost. Only naïve applications of the Homo economicus model assume that this hypothetical individual knows what is best for his long-term physical and mental health and can be relied upon to always make the right decision for himself. See rational choice theory and rational expectations for further discussion; the article on rationality widens the discussion.

As in social science in general, these assumptions are at best approximations. The term is often used derogatorily in academic literature, perhaps most commonly by sociologists, many of whom tend to prefer structural explanations to ones based on rational action by individuals.

The use of the Latin form Homo economicus is certainly long established; Persky traces it back to Pareto (1906) but notes that it may be older. The English term economic man can be found even earlier, in John Kells Ingram's A History of Political Economy (1888). The Oxford English Dictionary (O.E.D.) cites the use of homo oeconomicus by C. S. Devas in his 1883 work The Groundwork of Economics in reference to Mill's writings, as one of a number of phrases that imitate the scientific name for the human species:

Mill has only examined the homo oeconomicus, or dollar-hunting animal.

. According to the O.E.D., the human genus name Homo is

Used with L. or mock-L. adjs. in names imitating Homo sapiens, etc., and intended to personify some aspect of human life or behaviour (indicated by the adj.). Homo faber ("feIb@(r)), a term used to designate man as a maker of tools.) Variants are often comic: Homo insipiens; Homo turisticus.

Note that such forms should logically keep the capital for the "genus" name—i.e., Homo economicus rather than homo economicus. Actual usage is inconsistent.

Amartya Sen has argued there are grave pitfalls in assuming that rationality is limited to selfish rationality. Economics should build into its assumptions the notion that people can give credible commitments to a course of conduct. He demonstrates the absurdity with the narrowness of the assumptions by some economists with the following example of two strangers meeting on a street.

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"Where is the railway station?" he asks me. "There," I say, pointing at the post office, "and would you please post this letter for me on the way?" "Yes," he says, determined to open the envelope and check whether it contains something valuable.

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