Homo economicus – that autonomous utility-maximizing creature of ancient lore – has been dead for a long, long time. Economists today drag its rotting corpse through textbooks and academic studies and econometric models in a kind of Wealth of Nations and Zombies mash-up because – well, because that’s what economists do. It’s time and then some to give the poor creature a decent burial and a proper epitaph: “Here lies Homo Economicus: Not a Bad Start, But Fatally Flawed .”
This is hardly a new or radical observation. A quick examination of the works of Ludwig Von Mises, Murray Rothbard, Herbert Simon and Gary Becker show that both the critique of homo economicus and substantive alternatives have been around in the works of respected economic theorists for over 50 years. Behavioral economists such as Amos Tversky and Daniel Kahneman have been expanding the model of the economic person since at least the 1970’s. And as New York Times columnist David Brooks points out, the economic events of 2008-2009 “exposed the shortcomings of the whole field. Economists and financiers spent decades building ever more sophisticated models to anticipate market behavior, yet these models did not predict the financial crisis as it approached. In fact, cutting-edge financial models contributed to it by getting behavior so wrong — helping to wipe out $50 trillion in global wealth and causing untold human suffering.” (March 25, 2010)
This is hardly a new or radical observation. A quick examination of the works of Ludwig Von Mises, Murray Rothbard, Herbert Simon and Gary Becker show that both the critique of homo economicus and substantive alternatives have been around in the works of respected economic theorists for over 50 years. Behavioral economists such as Amos Tversky and Daniel Kahneman have been expanding the model of the economic person since at least the 1970’s. And as New York Times columnist David Brooks points out, the economic events of 2008-2009 “exposed the shortcomings of the whole field. Economists and financiers spent decades building ever more sophisticated models to anticipate market behavior, yet these models did not predict the financial crisis as it approached. In fact, cutting-edge financial models contributed to it by getting behavior so wrong — helping to wipe out $50 trillion in global wealth and causing untold human suffering.” (March 25, 2010)
Why has is taken so long to abandon this plainly flawed approach? A 21st century economist above all else must produce models and simulations, and good old homo economicus is so easy to use as a starting point. Those utility-maximizing algorithms are time-tested and give you genuine, hard numbers (even if, as it turns out, those hard numbers correspond to nothing at all in the real world we live in.) As the gambler said as he returned to the craps table: “I know the game is rigged, but it’s the only game in town.”
There’s a new game in town. We can bury homo economicus in good conscience because we have its replacement: homo communitatus. Joe Jeffrey coined this term as the title of his 2010 paper, which uses the deep and highly developed conceptual resources of Descriptive Psychology to offer a starting point for economic persons. Homo communitatus (1) does justice to the actual complexity of persons taking economic actions, and (2) provides a substantially more complex framework and toolkit for modeling and simulating economic matters.
No summation of the key points can do this paper justice (trust me, I’ve tried). It’s not obscure or hard to read; it’s just chock full of important conceptualization put together in an exciting and innovate way. If you want to participate meaningfully in the Dialogue at the DPI Center for Behavioral Economics, you’ll just have to take the time to read the paper. You can find a pre-publication version of the full paper at
http://www.descriptivepsychologyinstitute.org/HomoCommunitatis.pdf
Meanwhile, below is a brief example of the difference this approach can make in both theoretical and practical economics.
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