Home > Uncategorized > Homo economicus: cold, calculating & callous

Homo economicus: cold, calculating & callous

from Asad Zaman

Modern economic theory is founded on the  principle that human beings “maximize utility”; that is, they choose the best action from among a collection of choices. This axiom is considered self-evident: why would anyone make an inferior choice, when a better option is available? However, the mathematical formulation of this axiom is far from realistic. After all, it is self-evident that human behavior cannot be described by mathematical laws. Critics have invented the term “homo economicus” to describe behavior governed by economic laws, which differs drastically from normal human behavior. We can describe homo economicus as cold, calculating, and callous. We explain each of these terms separately.

The theory of consumimages (9)er behavior which is taught in business school differs drastically from the same theory taught in the economics school. The homo economicus of economists is cold – not subject to any emotional influences in his consumption decisions.  In complete contrast, a fundamental axiom of consumer theory in the business school is that effective marketing appeals to emotions instead of reason.  The proven effectiveness of business school methods in getting consumers to purchase a wide range of completely useless goods shows the superiority of their models of human behavior.   read more

  1. April 8, 2016 at 7:57 pm

    The debate (argument) you describe as I’ve attempted to point out many times on this blog is a fight between straw persons. One side says the calculating, callous, utility maximizing actor is the norm. Humans will always take this course. The other side says the calculating, callous, utility maximizing actor is a fiction growing from economists’ (main stream) psychologically maladjusted theories. Both sides miss the point. Sometimes and in some situations human actors focus a great deal on calculating, are callous, and do place greater importance on utility maximizing. In other situations humans focus more on cooperation, mutual respect, and negotiations that benefit all involved. These are not poles but part of a continuum of what’s possible and historical in human actions. A simple example. Charles Dickens did not “dream up” Scrooge. He based Mr. Scrooge on the actions of men (yes, men) who lived in his historical period. That Scrooge was “reborn” demonstrates that other actions can exist, even without the intervention of ghosts. That callous, calculating, utility maximizing is not a prison for humans. Historians and social scientists should focus on how processes of action creation develop in different time periods and different groups of humans. Rather than endlessly arguing about which set of patterns is innate and “natural.” Apart from some physical instincts no one set of action patterns is “natural” for humans. Study the processes and we all gain. Keep arguing about “natural human action” we remain stuck in ideological quick sand.

  2. April 9, 2016 at 1:05 am

    1. “Homo economics” is not a straw man in the sense that economists actually use this robot to predict how humans behave — hence their extreme surprise at the results of the ultimatum game. Colin Camerer has written that “if I had a penny for every time an economist told me that high stakes in the ultimatum game would drive behavior towards the “utiillty maximization” outcome, I would have a private jet on standby at all times.
    2. The process of economic modeling, used to understand impact of policy, consists of considering what would happen in a world populated by rational robots — this is what makes it possible to do the calculations. But this is also what makes modern economic theory highly unrealistic.
    3. See Julie Nelson “Poisoning the Well” to understand the impact of these assumptions of cold, calculating and callous as normal modes of behavior on actual human beings — How these lead us to suppress our natural impulses to be kind, compassionate and considerate, and act in shamefully inhuman ways.
    4. I have not suggested an alternative here — but the best that I have found is given by Karl Polanyi who says that human beings act to maximize social standing. In communities which value money above all things, they will seek to acquire money and act like homo economicus. If better social norms are promoted, they will act in more human ways.

    • April 9, 2016 at 5:00 am

      1. You’ve just defined an ideology. Using the same basic set of assumptions and formulae over and over again, no matter the situation. And no matter how many times you fail. Problem I see is that both neoclassical and heterodox economists use ideologies, just different ones. Different straw persons, but still straw persons.
      2. “Rational robots!” The ideology again. But as the old saying goes, even a broken clock is correct twice a day. So even the most bizarre ideology sometimes describes actual actions. Humans have historically on occasion taken actions that looked like those of a “rational robot.” But most of the time that ideology is just wrong,
      3. Julie Nelson, in the article you mention says, “The image of economic life as inherently characterized by self-interest, utility- and profit-maximization, and mechanical controllability has caused many businesspeople, judges, sociologists, philosophers, policymakers, critics of economics, and the public at large to come to tolerate greed and opportunism, or even to expect or encourage them.” And I agree with all her conclusions about the kind of world such an ideology creates. But that happens only if economic life is “inherently characterized by” this ideology. As I’ve said sometimes it is. Most times it is not. No matter what economists believe or want. Just keep reminding people of the limits of this, or any other ideology.
      4. Actually the evidence suggests that humans don’t maximize anything, even if they knew how or what to maximize. Humans seek to meet their needs. We can debate what those needs are. Maslow describes these needs in his pyramid – physiological (water, food, shelter), safety, love/belonging, esteem, self-actualization. Something like Maslow’s pyramid is a place to begin discussions at least.

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