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Homoeconomicus; Consumers Could Behave Rational All The Time

6 mins read

Homo Economicus is a phenomenon for solving basic human behavior on the economic theories and systems.

This phenomenon had started with” Utilitarianism” which was written by John Stuart Mill. In this book, Stuart Mill created a “full rational humanity” model (Akyıldız; 2008). At this time, maybe Mill was right and successful but when the economic system and institutions started to develop; some assumptions turned out wrong and empty. But before the discussion, we should explain what these assumptions is behind of “Homo Economicus” phenomenon.

1-Perfect Rationality: Homo Economicus (hereafter abbreviated HE) does not affect any prejudice and always chooses a rational decision.

2-Perfect Information and Cognitive Skills: HE always has all information and can objectively evaluate about goods that he wants to buy it.

3-Maximization of the Utility and Benefit: HE always shows a propensity to thinking its own utility and benefit in the economy.

4-Choice Consistency: HE aims, and choices always show consistency.

The first expression about HE is like an animal which is run always own utility and benefits. But this phenomenon disrupts some models. The first thing is emotions, people could not make decisions rationally all the time. Because sometimes people think Social or another person’s benefits or utility because of the consuetude and feelings. Another reason is perfect information part, today’s information and knowledge are so powerful and sometimes we live to a hard situation because of the cost of the arriving information. In this situation, some people can have more information than other people. We can talk about the “Inequality Competitive Market” case in the economy. For these reasons, economists and psychologists develop a new idea set about HE and created a “Bounded Rational Behavior” model. White trying to approach Dewey’s Moral Ethics and Kant’s Duty Ethics

(Akyıldız; 2008). During this period Hayek came up with a new idea set and defense of the “Irrationality” of the HE models. For Hayek, human beings are irrational and rationalism results from competition. (Akyıldız; 2008). Hayek’s ideas show the insufficiency of the Homo economicus Model. On the other hand, Richard H. Thaler who is a great professor field of Behavioral Economics explains the reasons “Why Homo Economicus idea is insufficient”; Optimism (Wishful Thinking), Overconfidence, The False Consensus Effect, and The Curse of Knowledge (Thaler; 2000). I think Thaler made a successful analysis of human-being interactions because we can give an example for all of them. We always have an Optimistic idea and believe it, sometimes this situation distracts us from reality and creates an Overconfidence condition. If society believes that idea, “The False Consensus Effect” is born and this idea expands all society. These conditions are mostly the first micro-reason for the “Crisis” and “Booming’s”. (Thaler; 2000). However, if we need to look at the event from an objective perspective and add a perspective to the situation, we should say that HE is not a phenomenon that has been created for no reason. Consumer behavior, which constitutes the cornerstone of the newly established science of economics, needed a rationality, in other words, a certainty to create a model in the conditions of that period. The Classical Economy doctrine, which was the dominant view of the period, entered close relations with the concept of HE and benefited from each other mutually. It is not surprising that a science that takes baby steps tries to connect the unknowns in its most fundamental stones to a final model.

As a result, my idea represents a HE is a “Utopic” phenomenon for the economic system and human beings because of ignoring emotions; bias, habits, and imitation movements. HE is an attempt to get rid of complexities of human behavior and try to connect consumer type with constant parameters (when the HE phenomenon was born, Alfred Marshall’s ideas were living the golden age and the economy started to link with mathematics.). “Finalizable and Predictable Human Model” is not realistic in economical systems. Because we are not trying to solve Mathematic or Physic functions, we do not have any formula or law about Humanity and its actions. Social Science always trying to solve these Human ideas and actions but despite all this, we can make just “Prediction” about it. Sometimes people can show rational movements but at the same time, people can do this for Irrational goals. Human psychology and movements are complex and can never contain certainty.


References;

  • Richard H. Thaler; “From Homo Economicus to Homo Sapiens” (Winter 2000); “Journal of Economic Perpectives”– Vol.14, No.1- pp 133-141
  • Dr.Hüseyin Akyıldız; “Homo Economicus With Its Dimensions Under Discussion” (2008); ”Suleyman Demirel University The Journal of Faculty of Economics and Administrative Sciences”- Vol.13, No.2- pp 29-40
  • Itıamar Shatz; Economic Man (Homo Economicus): On the False Assumption of Perfect Rationality(2021); Effectiviology

Ozan Kireççi

Istanbul University, Departmant of Economics, Interested Economics and Political Science.


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