Homo economicus

Homo Economicus is the theoretical portrait of a human who is consistently rational and self-interested. The main motive of all transactions and actions are deriving from rational egoism (D. A. Urbina and A. Ruiz-Villaverde, 2019). The term homo economicus comes from the combination of two other terms - homo sapiens (humans) and economics. Homo economicus can also be understood as an economic man. The concept of homo economicus is highly discussed in economics, sociology, psychology and anthropology studies. In economics, the concept of economic man is often discussed together with profit-maximisation (the theory of the firm), utility maximisation (consumer choice) and theorems of welfare (D. A. Urbina and A. Ruiz-Villaverde, 2019).

Concept of homo economicus

The term Homo economicus was first used by John Stuart Mill, who described a man "as a being who desires to possess wealth, and who is capable of judging the comparative efficacy of means for obtaining that end" (D. A. Urbina and A. Ruiz-Villaverde, 2019). Later it has been argued that the concept of homo economicus is not only about wealth and luxury; however, it can be applied to many other situations and cases.

Homo economicus is described as a human, who has predetermined motives to maximise the gain and secure the greatest value from economic interactions, and activities they have. This gain or maximised value is not always characterised by money or wealth. This self-interest is part of the everyday life of homo economicus When an economic man meets another person for economic interaction, homo economicus will assume that egoism and greed are the feelings driving that person. Although the impression about someone can be changed after some time, the first opinion of homo economicus about a partner is always judged from their own perspective (G. Ailon, 2020).

Roots of homo economicus behaviour

It is broadly discussed which anatomical systems might lead to homo economicus behaviour in a human. The two systems that might impact the way a person behaves are:

• Cognitive system;
• Emotional system.

A cognitive system is responsible for existing knowledge and discovering new knowledge. It encompasses functions that support rational behaviour, such as calculations, self-control, analysing, and forward-looking. The emotional system at the same time is more connected with irrational behaviour. The emotional system is attributed to empathy, lack of self-control, action prior to analysis and myopic. It can be seen that cognitive system is more related to rational behaviour and hence homo economicus than emotional system (L. Leonard, 2006).

On the other hand, evolutionary psychologists believe that the emotional system can make decisions faster and more accurate than decisions made using cognitive system. It is believed that the emotional system has the capability to activate all processes necessary for decision making in the shortest possible time (L. Leonard, 2006). Another point that can show that the emotional system is responsible for homo economicus is the possibility for humans to control their emotions. People who have a low level of empathy, and a have high level of egoism will be judging and making decisions based on their position only.

Criticising of homo economicus concept

There are arguments that criticise the theory of homo economicus One of these arguments is related to a social factor of homo sapiens. Humans do not live alone, but they tend to form groups and communities. If every human would be homo economicus which would mean being self-interested, there would be a small chance of a developed society. In any transaction or economic interaction homo sapiens must consider the interests of the partner. Otherwise, it is not possible for two parties to agree on cooperation. Social groups that are created by people are based on cooperation (D. A. Urbina and A. Ruiz-Villaverde, 2019). There is an existing paradox, where homo sapiens must consider their own interests (interests of their family) and also be part of a community and contribute to its progress. For instance, an individual must take good care of their family providing them with everything. At the same time, one must pay the taxes, work with other people to help them to achieve their goals and vote for programs that do not always benefit an individual's family.

Describing homo economicus

Homo economicus can be described as:

• In psychology Machiavellian personality can have characteristics homo economicus as these two terms have lots in common.
• Homo economicus is a theoretical portrait of a rational human. Modern behavioural economists believe that humans are not rational in their decision-making (D. A. Urbina and A. Ruiz-Villaverde, 2019)
• Cognitive or emotional systems might be responsible for the level to which the person is human economicus (L. Leonard, 2006).
• Homo economicus will be a practical, rational and self-interested human. Such individual has a high degree of rational egoism, which allows them to put their interests in the first place (D. A. Urbina and A. Ruiz-Villaverde, 2019).
• There are countries that have a high degree of individualism people in these countries sometimes can be wrongly perceived as homo economicus

References

• Ailon G. (2020), The Phenomenology of Homo Economicus. Sociological Theory, (38.1), 36-50.
• Leonard L. (2006), In Search of Homo Economicus: Cognitive Noise and the Role of Emotion in Preference Consistency Journal of Consumer Research, (36.2), 173–87.
• Urbina D. A. and Ruiz-Villaverde A. (2019), A Critical Review of Homo Economicus from Five Approaches. American Journal of Economics and Sociology, (78), 63-93.

Author: Nikita Shtemenko