Monday, July 27, 2015

Just Who the Hell is this Homo Economicus Guy Anyway?

Since writing my previous post about what Homo Economicus would do about North Korea, some people have written me asking questions about what Homo Economicus would do to solve other problems that are plaguing the world.

I think it's very important to get this out of the way. In most cases, Homo Economicus would do absolutely bupkis. In fact, he wouldn't even care about many of the world's big problems unless they directly affected him somehow.

So, for example, what would Homo Economicus do to help to reverse climate change? The extent of his involvement in helping to do that would probably be limited to counting his money after making a very lucrative investment in Silver Spring Networks. That's assuming that he thinks the benefits of investing in Silver Springs Network is greater than the benefits of purchasing flood insurance for the Maldives.

What Broken Window Fallacy?
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What if He were a Politician?

The next set of questions that I received was then what Homo Economicus would do about “X” if he were a political leader in a democratic republic whose job security depended on achieving results.

Unfortunately, it's still very likely that he would do nothing. That is because, according to James M. Buchanan's public choice theory, politicians and bureaucrats are also influenced by self-interest and utility maximization.

For their own purposes to maximize their own utilities, the vast majority of special interest groups lobby for the interests of minority groups rather than the public at large. Therefore, seeing how purpose-driven special interest groups tend to raise a lot more money for their preferred political candidates than the general public tends to do, and after we factor in the fact that incumbency rates tend to remain high regardless of how unpopular politicians are, politicians have a lot more incentive to favor Big Oil or Big Pharma or Big Banks or Big Telecom rather than average voters. And this is especially true if the politician in question were Homo Economicus, who is always seeking to maximize his own utility.

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Vulcan vs. Ferengi

This led one reader to question my decision to compare Homo Economicus to the Vulcan race. After all, Vulcans may be an unemotional and calculating lot but the fact remains that they tend to have goals, such as the pursuit of knowledge and other Utilitarian goals, that go beyond their own narrow self-interests. Another reader therefore posited that it would be more appropriate to compare Homo Economicus to the Ferengi rather than to Vulcans.

I thought that this was a fair criticism. Upon looking a bit deeper into Star Trek lore, I think that it is fair to say that Homo Economicus is, indeed, closer to the Ferengi than the Vulcans. However, based on my rather limited knowledge about DS9, it appears that the Ferengi can become quite emotional – often giving in to anger, envy, and excessive greed. Feel free to correct me if I got my Star Trek lore wrong again.

Homo Economicus is not only completely emotionless, he also never gives in to excessive greed. That is because Homo Economicus, being the completely rational individual that he is, would never violate the Law of Diminishing Marginal Utility like the Ferengi or other intelligent beings, fictional or otherwise, would.

So, I think it would be fair to say that we would need to combine the most extreme characteristics of Vulcans and the Ferengi in order to come up with something that might resemble Homo Economicus.

In a Nutshell

Also, as I said before, Homo Economicus is not immoral. It's true that, like the Ferengi, he would sell his own mother for a nifty profit if the cost of selling his mother were not greater than the benefits he would gain (we have to keep in mind that getting arrested would be a rather large cost that Homo Economicus would have to consider if he ever decides to engage in human trafficking).

Economic rationalism says nothing about ethics. Hover, that is not to say that Homo Economicus will deliberately always seek to be unethical. Being arrested by the police or being ostracized by other members of his community, which would seriously hamper his business relations, are just some of the costs that Homo Economicus has to contend with. However, if the benefits outweigh the costs, he will not let something as trivial as ethics stop him from conducting unsavory business deals.

So there we go. In short, Homo Economicus is a supremely rational, amoral, profit-maximizing, and dispassionate sociopath whom many people in the world might become fascinated with, adore even, but would never want to meet in real life.

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So Why Bother?

If that were the case, then why would anyone bother with what Homo Economicus would do? After all, he only cares about himself and doesn't care about the interests of the public.

It is all about incentives. If Homo Economicus were a politician, he would be the last person in the world anyone ought to expect help from. If he were a private individual or just a businessman, no one ought to expect anything from him besides looking out for his own interests, as well as those of his shareholders.

However, if he were a private contractor who was paid handsomely to come up with  ideas for public policies that could effectively solve some of the world's problems, then I think we could entertain interesting, albeit often unpopular, means to resolve them.

Well, here's to the profit motive.

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  1. So ... he's an assole, right? A lot like Donald Trump, I guess.

    1. Kind of, yes. Homo Economicus would share Trump's attitude of caring only about his own interests. But unless he knew for a fact that he would win, Homo Economicus would never run for president of the United States because it would threaten to alienate at least half his customers.