05/03/2015 06:42 GMT | Updated 04/05/2015 06:59 BST

Homo Economicus: A Terrible Economic Theory

'The distribution of wealth is too important an issue to be left to economists.' -

Thomas Piketty - French Economist

Politicians and economists often envision the economy as an abstract concept. Some economists, however, have argued that the economy is actually just a collection of individuals or economic actors. Such economists have even given these economic actors a name: homo economicus. Apparently, by understanding the motivations of homo economicus, one can posit arguments regarding different economic models and make predictions about a wide range of economic phenomena. Homo economicus is conceived as a rational and self-interested individual and thus economists argue that we should seek an economic model that would profit from this individual's actions. Economists often use homo economicus to justify an ideological allegiance to free market principles.

There are two problems with this conception of homo economicus. Firstly, and rather obviously, the idea that homo economicus represents a rational, self-serving individual is an overtly simplistic and one-dimensional proposition. Are we seriously suggesting that every individual is entirely rational? Are we honestly arguing that individuals are completely self-interested?

To counter this contention, allow me to offer a brief tale of personal irrationality. At a funfair last week, I purchased ten donuts despite pretty solid empirical evidence - based on a past experience - that I can only comfortably consume six. I ate seven that day, thus wasting both the surplus food (three donuts) and the surplus payment (about fifty pence). Due to my greedy overconsumption, I felt uncomfortable for the rest of the evening. I thus wasted money, I wasted donuts and I made myself sick. I, vicariously acting as homo economicus, was neither rational nor self-serving. These are not the characteristics attributed to homo economicus.

I doubt I am the only individual whose actions contradict the conception of homo economicus. People spend money on things they don't need, drink themselves stupid at prices they can't afford and perhaps worst of all, offer charitable donations and expect nothing in return. The conception of homo economicus vastly underestimates the greater qualities of the individual: kindness, generosity, solidarity, waywardness, stupidity and drunkenness. The great mass of individuals, I'm afraid, are neither self-serving nor even remotely rational.

The second problem with homo economicus is that even if one accepts that individuals are both rational and self-interested, one could still question whether the free-market system is the best economic model. Karl Marx, for example, would have surely argued that the economic actor is self-interested, yet would have imagined a different system to cater to that self-interest. Would Marx not argue that it is in the interest of all - or at least the vast majority - to destroy free market principles? Would he not suggest that it would be rational to completely abandon capitalism? Yet economists argue that the conception of homo economicus prompts us to accept free market ideals. The reality, however, is that even if we accept the foolish estimation of the economic man, it wouldn't convince us to adopt a free market economy or any other system. Accepting the obviously simplistic and erroneous conception of homo economicus actually achieves nothing. We would still be left arguing about which economic system would profit from the actions of a self-interested and rational individual.

Economists can be terribly one-dimensional. The worst among them believe that economic reasoning can explain the universe. The best understand that economics is limited in its scope. Homo economicus is one of those economic ideas that endeavours to explain everything. It adopts a very rudimentary philosophical argument regarding human nature and attempts to justify political and economic systems based on that argument. This idea in itself might lend credence to the notion that individuals are self-serving - the economists in question are usually ratifying their ideological beliefs based on this misguided concept - but it falls short in terms of demonstrating individual rationality. Homo economicus is an entirely irrational conception and it would ironically be both rational and self-serving if we ignored this overtly simplistic and utterly nonsensical idea.

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