what is homo economicus 
homo economicus is a theoretical abstraction that some economists use to describe a rational human being in certain neoclassical economic theories people are portrayed this way as ideal decision makers with complete rationality perfect access to information and consistent self interested goals understanding homo economicushomo economicus or economic man is the figurative human being characterized by the infinite ability to make rational decisions 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 those who study neuroeconomics however have demonstrated that human beings are in fact not rational in their decision making they argue that a more human subject that makes somewhat predictable irrational decisions would provide a more accurate tool for modeling human behavior origins of homo economicusthe origins of homo economicus lie in an essay about the political economy by the english civil servant philosopher and political economist john stuart mill in 1836 the essay which was titled on the definition of political economy and on the method of investigation proper to it attempted to assign characteristics to subjects under consideration for the new field mill s subject was a being who desires to possess wealth and who is capable of judging the comparative efficacy of means for obtaining that end he stated that political economy abstracts other human motives except for those that help the hypothetical being in his pursuit of wealth luxury is considered part of the being s desires as well as producing babies the economic man s tastes and propensities are also passed on from one generation to another according to mill in mill s model a parent with a taste for luxury might have children who possess similar tendencies 1defining traits of homo economicusthe most important trait of homo economicus is that they care primarily about maximizing profit more importantly they are always able to make decisions that allow them to pursue this goal in the most efficient way if they are a consumer the primary goal of the homo economicus is to maximize utility if they are a producer their primary goal is profit in addition to profit maximization there are several other defining traits of homo economicus these traits include flawless rationality unlimited cognitive capacity perfect information narrow self interest and preference consistency the decision making of the homo economicus is perfectly rational and is never influenced by any personal biases the homo economicus also has an unlimited cognitive capacity and can process any amount of information regardless of its quantity quality or complexity furthermore the homo economicus has access to all the relevant information that relates to the decisions they have to make the homo economicus possesses narrow self interest they are only concerned with helping themselves finally the homo economicus preferences and goals remain constant over time homo economicus todaythe homo economicus is a cornerstone of the neoclassical economics approach particularly in microeconomics in modern economics the neoclassical theory rests on three assumptions rational decisions maximization of utility and a self interested orientation this assumes that individuals are conscious of making decisions based on their own self interest that individuals have relevant and full information so they can make a rational calculation that would maximize utility and that the primary goal for companies is to maximize profits and for individuals to maximize utility companies accomplish this by adding to their workforce until a point where the value of the output balances the additional cost of hiring workers consumers attempt to maximize utility by paying for goods and services up to the point that the amount they pay balances the satisfaction gained from an extra unit 2limitations of homo economicushistory and various economic crises over the years have proved that the theory of an economic man is a flawed one 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 economics 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 3 other human decision making modelsbecause there are many criticisms of the homo economicus model there have been alternative models of human decision making that have been proposed over the years here are a few of them homo reciprocans the homo reciprocans is a person who rewards positive actions and punishes negative actions 4homo politicus the homo politicus is a person that always acts in a way that is consistent with what is best for society 5homo sociologicus the homo sociologicus is a person that is not always perfectly rational because they are affected by society they strive to fulfill their role in society but are also influenced by societal forces 6it s important to keep in mind that these models are not mutually exclusive for example while a person may act like a homo reciprocans in one situation they may act like a homo politicus in a different situation example of homo economicusthe most common example provided of the homo economicus is that of a businessperson the businessperson seeks to eke out profits from each transaction and decision for example they may automate operations and lay off workers in order to maximize productivity similarly they might get rid of non performing parts of their business to focus on the ones that generate profits in 2007 in an essay in the new york review of books called who was milton friedman paul krugman wrote that for most of the past two centuries economic thinking has been dominated by the concept of homo economicus it s easy to make fun of this story nobody not even nobel winning economists really makes decisions that way but most economists myself included nonetheless find economic man useful with the understanding that he s an idealized representation of what we really think is going on 7 