What Do We Need Homo Oeconomicus For?

A few days ago, the celebrity among German economists, Hans Werner Sinn, published a short piece in the Süddeutsche Zeitung in which he defends economics against common and, according to him, mistaken criticisms. I won’t take issue with all 6 points he raised (invisible hand, ecology vs economics, Keynesianism vs neoclassical economics, competition, neoliberalism and homo oeconomicus), instead focusing on the last one. I had started writing a post on this anyway, so Sinn’s commentary comes just-in-time. The main question behind my criticism of Sinn’s presentation of the problem is: what do we need homo oeconomicus for? Continue reading

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Positive Economics and Psychology

Economists often argue that in their research their engage in positive science, which means that they use models of human behaviour to test the consequences of various policy scenarios. Importantly, they do not engage–in their own contention–in normative analysis, i.e., they do not attempt to formulate prescriptions as to which policies/modes of behaviour are the right ones (except when “right” means “welfare maximising”). There is much to be questioned about that, including whether economics actually deserves being called a science or whether welfare maximisation is or, in fact, can be normatively neutral as a source of guidance for analysis. I will not dwell upon these questions today. Rather, today’s topic is the model of human behaviour conventional economics rests upon and whether one can call the application of this model–the so-called homo oeconomicus–positive analysis. Continue reading

The Rationale for Being a Sceptical Economist

Recently I have renamed my blog to “The Sceptical Economist”. Partly, it is an ironic allusion to the self-called Skeptical* Environmentalist Bjørn Lomborg. Another reason for choosing this name is my dedication to rationality, pragmatism and scepticism – the foundation I try to base my worldview on. The last reason rationalizing my choice is my deep scepticism toward the dominant orthodoxy in the discipline I’m trained in – economics. This last reason I would like to explain more comprehensively today. Continue reading

Capitalism or Distributional Justice?

Sometimes when one does not have a clear opinion on something, it is helpful to ask others. Today I am in this situation, and therefore have decided to ask for help. What do you think?

The full question is the following (it is too long for Polldaddy): Isn’t it a contradiction to expect people both to act in a self-interested way in their market behaviour (since this is believed to lead to greatest possible efficiency) and to embrace policies directed toward a redistribution of thus acquired wealth (out of an ethical recognition of the inability of the market to provide societally “just” outcomes)?

You are welcome to add further explanations of your answer via comments.

The Self-enforcing homo oeconomicus

The main foundation of contemporary economics and, for that matter, of modern capitalism, is the assumption of homo oeconomicus – a “rational”, i.e. strictly self-interested, (own) utility maximizing individual who is able to reasonably assess the consequences of her own doings (expressed inter alia in the assumption of full consumer sovereignty) and reveals its (unchanging) preferences through her consumption decisions. Homo oeconomicus is the core of successful economic activity (at least according to neo-classical economists) and, so the argument goes, a good simplification of human behavior. While there is much criticism of the accuracy of this model (see, e.g., Amartya Sen’s “Rational Fools” paper), my question here shall primarily be whether it is possible that the homo oeconomicus is a kind of a “self-enforcing prophecy”. Continue reading