September 28, 2009

Humans and Econs

One of the cherished ideas (I don't want to degrade the word "myths") of neo-classical economics is that of humans as profit-seeking organic calculators hardwired to act rationally to maximize material self-interest. We can call homo economicus for short.

One problem with this idea is that not a whole lot of such creatures live on this planet. Richard Thaler and Cass Sunstein, authors of Nudge: Improving Decisions About Health, Wealth, and Happiness, distinguish between Humans (most of us) and Econs (the mostly imaginary creatures found in economic textbooks). As they put it,

...Whether or not they have ever studied economics, many people seem at least implicitly committed to the idea of homo economicus, or economic man--the notion that each of us thinks and chooses unfailingly well, and thus fits within the textbook picture of human beings offered by economists.

If you look at economics textbooks, you will learn that homo economicus can think like Albert Einstein, store as much memory as IBM's Big Blue, and exercise the willpower of Mahatma Gandhi. Really. But the folks that we know are not like that. Real people have trouble with long division if they don't have a calculator, sometimes forget their spouse's birthday, and have a hangover on New Year's Day. They are not homo economicus; they are homo sapiens. To keep our Latin usage to a minimum we will hereafter refer to these imaginary and real species as Econs and Humans.

The growing field of behavioral economics has shed light on the vast difference between imaginary Econs and real Humans. More on that to come.

PARANOIA REVISITED. This op-ed on political paranoia by yours truly, known informally on this blog as Whackadoodle-ism, appeared in yesterday's Sunday Gazette-Mail and on Common Dreams.

MOVING ON TO FEAR of health care reform, here's another item from the Gazette.

CLIMATE CASSANDRAS. Here's Paul Krugman's latest.



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