Becoming a homo economicus

By Max Douglass

In the late 18th century, a new species began to emerge. Its emergence coincided with the rapid structural changes to economies around the world, and its behaviour would influence innumerable generations of economists and sociologists. Such a creature was not identified by a zoologist, nor a botanist, but by the mere social scientist. This creature? The homo economicus. The rational, maximising, lonesome and isolated individual who, by all accounts, will consume ad infinitum, because as we all know, the marginal utility of consumption is always and everywhere positive.

While the purported father of economics, Adam Smith, wrote of the homo economicus in his Wealth of Nations, and countless others in the classical political economy tradition have speculated on the taxonomy of this particular creature, the best known assessment of homo economicus and what would become its parent discipline comes from John Stuart Mill in 1836: “[Economics] is only concerned with [them] solely as a being who desires to possess wealth, and is capable of judging the comparative efficacy of means for obtaining that end”. Such a characterisation of the post-industrial revolution individual has remained the dominant understanding of most, if not all, behaviour pertaining to consumption and production for the last 200 years.

As a heuristic tool, our understanding of the homo economicus has been incredibly fruitful. Breakthroughs in microeconomics have depended upon and refined these classical assumptions, and we would certainly not be able to model the macroeconomy without certain expectations about individual behaviour. The primacy of, and our dependence upon the behaviour of the homo economicus has even spawned an entire subdiscipline; that of behavioural economics, which explores holes in our understanding of economic rationality. Notwithstanding the recent contributions of behavioural economics to the field, it may be useful to explore the question, does the homo economicus actually exist? And if so, where and under what conditions does it exist?

Social scientists are often guilty of using students as experimental guinea pigs, and it would be a particular mistake to use economics students, whose entire educational experience has been devoted to the homo economicus’ eccentric behaviour, as experiment subjects to answer this question. In light of this, Joseph Henrich, chair of human evolutionary biology at Harvard University, and his co-authors, sought to empirically test the fundamental behavioural assumptions on traditional societies across the world. Their study, using subjects from small scale societies over 5 continents, concluded that “the canonical model is not supported in any society studied”. The study further found that the notion of enlightened self-interest was always and everywhere, “systematically violated”, and that preferences over economic choices are not exogenous but are in fact “shaped by the economic … interactions of everyday life”. In other words, our economic behaviour is bounded by social, political, and interpersonal norms, rather than innate self-interest.

Henrich continued his search for the homo economicus, and eventually identified assumption-consistent behaviour. Unfortunately, the homo economicus ended up being a chimpanzee. The canonical assumptions of economics were found to pertain to a completely different species.

While such a discovery would not, and ought not, undo centuries of work in the discipline, we should perhaps consider the implications of normalising the traits of the homo economicus as a baseline for all human behaviour. For instance, in the 1990’s, Robert Frank, Professor of Economics at Cornell, gave his students a range of assignments to measure their generosity, and found that the longer they’d studied economics, the more selfish they became. Similar studies identify a peculiar selfishness in students and practitioners of the discipline, and though this may be attributable to a self-selection bias, it appears to be driven by assumptions about the behaviour of others — that they, too, will behave in their rational self-interest.

Does the pious Christian believe because the expected utility of salvation is greater than that of damnation? Does a spouse marry their beloved because the expected discounted future gain is greater than the counterfactual (See Becker 1973, A Theory of Marriage)? Do we donate our time and resources solely in the pursuit of the ‘warm glow’ effect? And does a parent sacrifice their life for their child in the hope of some post-mortem non-corporeal reciprocity? Probably not.

Let us celebrate the intellectual triumphs and breakthroughs attributable to our understanding of the homo economicus, and most importantly, let us celebrate their tangible impacts on development, equity and efficiency around the world. It would be a mistake, however, for our assumptions of the homo economicus to become normative. We should maintain an appreciation of, but keep a distance from, the homo economicus. It should remain an object of our study, but not of our imitation. While Oscar Wilde affirmed that “life imitates art”, the homo economicus is certainly no work of art.