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 economic man. The concept of homo economicus is highly discussed in economics, sociology, psychology and antropology 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).

Homo economicus

The term Homo economicus was first used by John Stuart Mill, who described 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 predetrmined 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 charactersied by money, or wealth. This self-interest is part of everyday life of homo economicus. When an economic man meets another person for an 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 judjed from their own perspective (G. Ailon, 2020).

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.

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

On the other hand, evolutionary psychologists believe that emotional systems can make decisions faster and more accurate than decisions made using cognitive systems. It is believed that 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 emotional system is responsible for homo economicus is the possibility for humans to control their emotions. People who have low level of empathy, and have high level of egoism will be judging and making decisions based on their position only.

There are arguments that critise 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 for 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 a good care of their family providing them with everything. In the same time, one must pay the taxes, work with other people helping them to achieve their goals and vote for programs that do not always benefit individual's family.

Describing homo economicus

Homo economicus can be descirbed as:

• In psychology Machiavellian personality can have charateristics 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.
• Cognitive or emotional systems might be responsible for the level to which the person is human economicus.
• Homo economicus will will be a practical, rational and self-interested human. Such individual has a high degree of rational egoism,which allows to put their interests on the first place.
• There are countries that have high degree of inidividualism. 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, vol. 36, no. 2, pp. 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