What is Homo Economicus - Research Paper Example

What is 'Homo-Economicus'? Introduction This paper aims at understanding and discussing the concept presented by previous researchers on the topic of Homo Economicus. The work done by Read (2009), Blackman et al (2008), Burkitt (2008) and Irene & Tseng (2008) will be discussed and analyzed with respect to the stated topic. Although a relatively common term it had not come into practical use till the 19th century. It is a Latin term that was introduced in 1906 and earlier “Homo economicus”, was called “Economic man”. It is a phrase used for a rough calculation of Homo sapiens which performs to acquire the top likely given available data about opportunities. This method was made in some social science models, mainly in certain economic models. Generally in social science, these suppositions are at adequate. The expressions are normally used by sociologists, derogatorily in writing, as they prefer structural explanations to rational action. Economic human bases his choices merely the contemplation of his own personal "utility function". To the level that this utility function does not believe the well-being of others, Homo economicus is self-centered. Some believe such assumptions about humans are immoral. Economists however disagree, stating that it may be related to examine the cost of progressive egoism just as it is meaningful to believe social behavior. To further our discussion on the above term we also need to understand the basic economics and how it plays an important role in our daily life. We are all well aware that “economics is the study of how people choose to use resources”. Resources contain the time, talent, land, buildings, equipment, and the knowledge that people have and how to merge them to create constructive result. Imperative choices occupy the amount of time to apply to school, work, and leisure. What amount to spend and to save? How to mix possessions to make commodities and facilities? How to choose and form the stage of taxes and the responsibility of government? All these questions are linked with the decisions that any individual will need to take at some stage of his life. Often, people come out to use their resources to their benefit. Benefits include the fulfillment people get from the goods and services that they have selected, from their time spent with their family and on job. However, in some cases the usage of their resources does not perk up their welfare. To sum up, the study of economics refers to employment, production, investments, property, tax and revenue. The people of this field search for not only computing the well-being but also to find out how it can boost ultimately, and it will assess both rich and poor. A famous book was written in 1776 “Inquiry into the Nature and Causes of the Wealth of Nations” by Adam Smith. Though the actions of persons are vital, this study also discusses the combined performance of governments, businesses, countries, and the globe. The two basic terms are Micro and Macro economics and in this field they play a very important role as they cover the whole scope of economics. The first term that is the “Microeconomics” begins with the philosophy about how people make decisions. This is the part of economics featuring or focusing on the minor level decisions or functions in the field of economy. Personal or individual decisions and actions are all calculated for with the help of this part. On the other hand “Macroeconomics” considers cumulative outcomes. This means the larger scope of economics like the country’s economic condition, trade, export etc. These points are extremely vital in comprehending most of the economic phenomena. Subject of Neoliberalism To further understand how homo-economicus is involved in the economic studies we need to understand a few more terms like “Neoliberalism”. From the end of the 21st century “activists use the word 'neoliberalism' for global market-liberalism and for free-trade policies”. 'Neoliberalism' on various occasions had been interchangeably used as “globalization”. However, the terms like “free markets” and “global free trade” are not fresh. The use of this term tends to ignore the progresses that have been made in the highly developed economies. The study or research that has been presented in this paper brings a comparison of Neoliberalism with the old terms that were used. Thus to understand it we can easily say that its’ not only economics. Neoliberalism is the communal and ethical beliefs, “in some aspects qualitatively different from liberalism”. Common feature of “Neoliberalism” is a need to deepen and increase the market, and by furthering the “number, frequency, repeatability, and formalisation of transactions”. The eventual or unreachable objective of Neoliberalism is a world “where every action of every being is a market transaction”, carried out in contest with different individuals and manipulating every other business, with dealings taking place in an substantially short time, and recurring at an substantially fast rate. “It is no surprise that extreme forms of Neoliberalism, and especially cyber liberalism, go beyond with semi-religious beliefs in the interconnectedness of the universe”. Read (2009) discusses the factors that relate to Homo-Economicus like Neoliberalism. In his article he refers to the work of Foucault “the manner in which Neoliberalism is not just a manner of governing states or economies, but is intimately tied to the government of the individual, to a particular manner of living.” To outline Foucault’s analysis its’ helpful to initiate how dissimilarity are found among “Liberalism” and “Neoliberalism”. The discrepancy is related to the different methods, each concentration upon financial doings. “Classical liberalism” focuses on what Adam Smith called “mankind’s affinity to barter, truck, and exchange.” By this method the market is naturalized as a structure with prudence, interest, and precise competence, quarrelling eventually for higher competence as a vendor of “goods and services”. Market turned into an area of independence which had to be pulled from this situation by unrestricted rights of personal belongings. Foucault emphasizes on in his study the method where the market turns into more than a definite establishment that performs to a level where it becomes the source for re-explanation, hence evaluate the power of the state. “Classical liberalism” brings change to the “general matrix” of culture. “It develops a homology: just as relations in the marketplace can be understood as an exchange of certain freedoms for a set of rights and liberties”. As stated by Foucault, “Neoliberalism expands the procedure of creating economic action a “general matrix” of social relations, but it makes certain not exchange but competition”. While researching on this topic many articles were looked through and amongst them some interesting facts were discovered about the phrase that was initially used as “Economic Man”. We will further discuss in view of the articles undertaken for this study to shed light on the true element of this term and how during the years the progression or development of further research has lead to its evolution. Homo-Economicus Evolution “Economic man is not without his critics, especially when empirical observations of human behavior seem to contradict the predictions” (Beckert 1996; Mueller 2004). Arguments are presented stating that “the concept of economic man is too narrow, as self-interest is not the only motivation and people are often driven by social norms as well” (Dahrendorf 1968). Simon (1957, 1972, 1976) claims that “human beings’ rationalities are bounded. Seeing man as omniscient is unrealistic and cannot credibly explain real phenomena”. Similarly, Kahneman and Tversky (1979) discovered that “behaviors are not always consistent with rational economic theory”. This research indicated how a group can act irrationally, but will incline in the direction of “loss aversion”. The idea projected by Benartzi and Thaler (1995) of “myopic loss aversion” to demonstrate that “people will weigh a unit of loss to be greater than a unit of gain”. Their efforts provided further desire for “psychological reflection” in conventional economics. Economists dispute to describe a lot of conclusions from a simple action and disregard the background of such actions. Hypothesis of “planned behavior” (Ajzen 1991) says that “one’s behavior is determined by one’s intention, and one’s intention is determined by one’s attitudes toward the behavior, subjective norms, and the perception of difficulty in performing the behavior”. Hence, it’s not sufficient to just expect results relying on how people behave; but must also clarify why they behave in that way. Economic human is a foundation on which the theories of economics are made. The idea was given by John Stuart Mill in 1836 (Persky 1995) stating that “economic man is solely as a being who desires to possess wealth, and who is capable of judging the comparative efficacy of means for obtaining that end” (1995: 321). Although Mill highlighted “the essential idea of economic man is the link between proficient way and wealth, the meaning of wealth is not only in acquiring material pleasures”. “Other goals such as accumulation, leisure, luxury, and procreation are also embedded in the pursuit of wealth” (Persky 1995). Hence, this man decides the proportional effectiveness to achieve prosperity, plus the one who tries to increase satisfaction. Adam Smith’s (1776) recommended “by merely acting on his own self-interest, he can unintentionally promote public interests”. “Yet, his freedom of pursuing self-interested gains is not unbounded” (Grampp 1948) “because a free market can work well only when the divisions of labor and unfettered competition are built on a civilized society” (Coase 1976; Kaufman 2002). It’s like Hobbes’s (1947) finding in which he suggested that “human nature is self-interested and some people are thought to be sorely profit pursuing” (1969), that can be considered at the initial bases of Human Economics (Moss 2002). Hobbes’s vision is not like the orthodox “economics” as an impulsive common order. In traditional “economics”, arrangement of the community could be gained by “invisible hand.” He sensed that autonomous authorities as well as penalties were essential to attain peace and organization. According to the article “The Evolution of Homo Economicus” the “economic man” has travelled or drifted into “neoclassical economics”, increasing riches and contentment turned to the more basic expression of “maximizing utility” that is more than often explained as “benefits for the individual”. Therefore, as noted by Mises ([1949] 1996), the action of humans, in particular the hypothesis of economics can merely be understood given that the human nature portrayed to be selfish draws on the behaviours prior to the view. The term Homo Economicus or the Economic Man has been involved in so many models and theories and no doubt has evolved in many ways. For the current methods that we will be discussing in the following paragraphs there are various choices or rationales that provide a valid input. The research that has already been made in order to analyze the importance and relevance of the term and how it helps create economists models that support their work. Another approach with reference to the economic man is the man linked or related to the society. That indicates that the social aspects are just as important and thus new research provides us with data that shows why. Today the theory related to the social aspects presents 3 strategies at a larger scale that would explain the reasons to people complying with the norms of the society. Firstly we have the theory of rational choice which makes use of Homo economic models. This generally briefs about the actions in compliance with the standards set by the society as the result of the “strategic interactions of instrumentally rational, self-interested individuals”. Second is that theory of evolution which employs the models related to the biology or culture. It elucidates agreement to community rules like the appearance of inherited “genetic or cultural traits” that contain different achievements in duplicating themselves because of the process of selection. The third of these strategies makes use of the “Homo sociologicus” model – may be termed as “social” or “cultural” reasonableness. This refers to the traditionalism of rules of the society with reference to the “normativity” of rules including the basis that in many ways this normativity is seen by individuals as significantly demonstrating their “social identities”, relations to others or values and intentions thus shared. The above strategies which have been explained briefly bear dissimilar relations to the agents view point. The opinion of external to the agent is explained or understood by the “Evolutionary theory”. A rule might be extended for the reason that discerning forces working separately towards what their supporters view to be obligatory in order to follow them. “Social rationality” suggests rules of the society with reference to the opinion of the supporter himself. With regards to this opinion a large group of people follow it due to the normativity and also internalized this rule. The thirds theory termed as the “Rational choice theory” corresponds to people who take estranged positions in the direction of community rules. All these theories refer to the behaviour of human beings when encountering different rules and regulations as set by the society that they live in. Economics has always been an integral part of the lives of human beings as it deals with the trade and business as well as the personal decisions that are made by the people. In all the articles that have been studied the common factors has been that they all view Homo-economicus to be important when discussing the characteristics related to the people and socities. Researchers have provided various insights as to how well this term relates to an average human being. On the contrary there are certain views that feel that this term does not quite cater to what the economic man would do. They state that human being is a very irrational being and may act totally opposite to what these models or theories refer. Some even oppose this model completely and present their opinions stating that this has already evolved to such a great extent that it may be on the verge of becoming totally extinct. With reference to the article stating the three strategies, the author suggests that even though the people might view that standard traditional values to rules is desired, it doesn’t supply the rationale needed by them for conformity, as far as “personal conformity” is to some extent ‘costly to each agent’. Furthermore the article points out the only reason conditionally linked to the rule which might offer a coherent, self-absorbed person a motive to obey the rules. An individual’s motives for obeying the rules tend to be mostly external. This means that the society plays an integral part as far as the behaviour of a person is concerned. Another article written by Irene C. L. Ng and Lu-Ming Tseng sheds light on progression of the so called “economic man” or as the Latin term suggests Homo economicus, starting with the original formation of the term till the present day. Through an analysis and discourse of various articles related to economics the authors have provided a sequential description how the rational and idealistic progress of the economic man developed from the so called “philosophical age to the neoclassical age and now to the current age of strategy”. Further it proceeds to explain how the “economic man” in this new era of strategy is gradually discovering a union with the “sociological man” or as termed Homo sociologicus. For any two sapiens to settle seems quite complicated. Nevertheless, an insight has been provided with the possibility for some sort of settlement or agreement through some new research on “behavioral and experimental economics”. The above article and the insight it provides discusses the idea indicating that the “sociological man” needs to recognize not only who he is but also the way he interrelates with individuals in a society, as well as the forerunners related to this behaviour. Homo Economicus, though, holds “no overarching philosophical assumptions on what he values”. Each order’s purposes seem unlike in addition to the fact when “one is drawn against the other”, it is vague to find out whether any tension exists amongst them. The age of philosophy highlighted the configuration of “Homo Economicus” and the advancement of mans “ideological foundations” that include the most long-term maxims of selfishness and coherent actions. When the economic man or the so called Homo-Economicus ventured in the “neoclassical economics”, he not only turned into a “logical tool for the prophecy of outcomes but also a form for the self-interested value maximizer working with limited funds inside the world”. The “neoclassical age” also saw spin-offs of Homo Economicus to not only the contractual and behavioral but also the “social dimensions” as disparagements put on the innovative notion. The paper argues the criticism and demonstrates the methods “as the economic man enters the strategic age, issues such as social norms, interactive choice, learning, and cooperation” get attention while the researchers struggle to achieve an increasingly forceful formulation of Homo Economicus. Continuing with the argument the evolved Homo Economicus in the tactical era doesn’t contain any suppositions regarding human nature—simply that a person is egotistical—“nor has he any overarching philosophical assumptions on what he values”. This study or research indicates that the person in terms of the characteristics or behaviour that he posses may be Homo economicus. As discussed above we have so far understood what Neoliberalism is and how this has been affecting the behaviour of the economic man. We will further see the “Rules for Rational Decision; Bounded as well as Classical” to clearly understand how far this term has progressed. Now looking at another article “A note on the evolution of Homo economicus”, we find that Doucouliagos (1994) suggests ideas about the rational decision rules related to classical and bounded strategies. According him the “neoclassical economists' Homo Economicus has more than a few characteristics”. Amongst them the most important are the stated three: 1. Increasing or optimizing behavior; 2. The ability of cognition in order to implement coherent option; and 3. Third the distinctive manners and autonomous tastes and preferences. The question that arises is that what is the extent to which “Homo-Economicus” is roughly approximated to “Homo - Sapiens”? There are 2 different sets of analysis found in relevance to the Homo-Economicus. The first set has the restricted wisdom that is satisfying the critical manners. Components that are shown here are: First, the limitations of the choice made rationally which are based on cognition. Second the adaptation of the agents rather than optimizing; and Third, referring to the agents as satisficers instead of maximizers. As for the next set of criticisms concentrate more on the task of organizations and behavior of groups presenting two basic points: One, that the representatives would not necessarily act as individuals, and Two, that the “tastes and preferences” of these agents are not exogenous or self-regulating. The “Paleo-Homo Economicus” supporters debate that the model is simply a notion like all other models. It, by no means intends to duplicate “Homo-sapiens”, except to confine some inclinations as well as the fundamental nature of logic. It is nonetheless a sound debate because both ideas and building models are integral part of economics. Nevertheless, a similar argument that is both important and valid may be about the economic progress using modification of presented models. This means all the abstractions and that the acceptance of models best reflecting the soul of “human decision making”, is required. As far as the discussion and views are concerned of researchers it is certain that the concept of Homo-economicus is practically a term that is still being used at large in all economic models as it predicts how the man might behave. We cannot disagree however with the views of some other researchers that also present us with the suggestion that it may be becoming an outdated term in the near future. If we simply consider the fact of the long past that this term has and how through centuries it has evolved but not ignored completely by economists, we can safely say that it may be used in other models as well. References Anderson, E. (2000). Beyond Homo Economicus: New developments in theories of social norms. Philosophy & Public Affairs, 29(2): 170-200. Blackman, L., Cromby, J., Hook, D., Papadopoulos, D., & Walkerdine, V. (2008). Creating subjectivities. Subjectivity, 22(): 1-27. Burkitt, I. (2008). Subjectivity, self and everyday life in contemporary capitalism. Subjectivity, 23, 236–245. Doucouliagos, C. (1994). A note on the evolution of Homo economicus. Journal of Economic Issues, 28(3):877-883. Foucault, M. (2008) The Birth of Biopolitics: Lectures at the Collège de France 1978-1979, trans. Graham Burchell. London: Palgrave Macmillan. InterNLnet. (2005). Neoliberalism: origins, theory, definition. [Online] Available at: http://web.inter.nl.net/users/Paul.Treanor/neoliberalism.html [Accessed January 6, 2010]. Irene, C.L., & Tseng, Lu-M. (2008).Learning to be Sociable: The Evolution of Homo Economicus. American Journal of Economics and Sociology, 67(2): 265 – 286. Read, J. (2009). A genealogy of Homo-Economicus: Neoliberalism and the production of subjectivity. Foucault Studies, (6): 25-36. Read More