A:

Homo economicus or

"economic man" is the characterization of man in some economic theories as a rational person who pursues wealth for his own self-interest. The economic man is described as one who avoids unnecessary work by using rational judgment. The assumption that all humans behave in this manner has been a fundamental premise for many economic theories.

The history of the term dates back to the 19th century when John Stewart Mills first proposed the definition of homo economicus. He defined the economic actor as one "who inevitably does that by which he may obtain the greatest amount of necessaries, conveniences, and luxuries, with the smallest quantity of labor and physical self-denial with which they can be obtained."

The idea that man acts in his own self-interest often is attributed to other economists and philosophers, like economists Adam Smith and David Ricardo, who considered man to be a rational, self-interested economic agent, and Aristotle, who discussed man's self-interested tendencies in his work Politics. But John Stewart Mills is considered the first to have defined the economic man completely.

The theory of the economic man dominated classical economic thought for many years until the rise of formal criticism in the 20th century from economic anthropologists and neo-classical economists. One of the most notable criticisms can be attributed to famed economist John Maynard Keynes. He, along with several other economists, argued that humans do not behave like the economic man. Instead, Keynes asserted that humans behave irrationally. He and his fellows proposed that the economic man is not a realistic model of human behavior because economic actors do not always act in their own self-interest and are not always fully informed when making economic decisions.

Although there have been many critics of the theory of homo economicus, the idea that economic actors behave in their own self-interest remains a fundamental basis of economic thought.

(For more on this topic, read Economic Basics: Introduction.)

This question was answered by Richard C. Wilson.

RELATED FAQS
  1. How do stockholders use agency theory to affect management?

    Explore the intricacies of agency theory that places stockholders and management in a unique relationship where both parties ... Read Answer >>
  2. How do I build a profitable strategy when spotting a Hanging Man pattern?

    Learn how to use the opportunity for a low-risk, high-reward trade that is presented when a trader identifies the hanging ... Read Answer >>
  3. How does economics study human action and behavior?

    Find out why economics can be considered a deductive social science, like sociology, and how human action and behavior informs ... Read Answer >>
  4. Where does stimulus economics come from?

    Depending on which type of economist you talk to, stimulus economics originated from the ideas of either a book published ... Read Answer >>
  5. Does agency theory apply to brokers and clients?

    Learn how the existence of incentives that encourage moral hazard impacts broker-client relationships. Understand how agency ... Read Answer >>
  6. How are Hanging Man patterns interpreted by analysts and traders?

    Learn the meaning of the hanging man candlestick formation and why it is viewed by market analysts and traders as a possible ... Read Answer >>
Related Articles
  1. Financial Advisor

    Man Group: Investment Manager Highlight (EMG.L)

    Learn more about Man Group, a London-based investment manager, and the four investment divisions that handle its product offerings.
  2. Insights

    Economics Basics

    Learn economics principles such as the relationship of supply and demand, elasticity, utility, and more!
  3. Investing

    Understanding Self-Interest

    Acting in one’s self-interest means to act in the way that is the most personally beneficial.
  4. Investing

    Explaining Rational Behavior

    Rational behavior guides the decision-making process toward choices that maximize an individual’s benefit.
  5. Insights

    Why Can't Economists Agree?

    There are many reasons why economists can be given the same data and come up with entirely different conclusions.
  6. Investing

    How Influential Economists Changed Our History

    Find out how these five groundbreaking thinkers laid our financial foundations.
  7. Managing Wealth

    The Science of Making Better Investment Decisions

    Neuroeconomics attempts to bridge neuroscience, cognitive psychology and economics in order to understand the mechanisms underlying economic decision making.
RELATED TERMS
  1. Homo Economicus

    A term that describes the rational human being assumed by some ...
  2. Economic Man

    First coined in the late 19th century, the term 'Economic Man' ...
  3. Self-Interest

    Acting in the way that is most personally beneficial. Adam Smith, ...
  4. Rational Choice Theory

    An economic principle that assumes that individuals always make ...
  5. Mainstream Economics

    A term used to describe schools of economic thought considered ...
  6. Neoclassical Economics

    An approach to economics that relates supply and demand to an ...
Hot Definitions
  1. Money Market

    A segment of the financial market in which financial instruments with high liquidity and very short maturities are traded. ...
  2. Block (Bitcoin Block)

    Blocks are files where data pertaining to the Bitcoin network is permanently recorded.
  3. Fintech

    Fintech is a portmanteau of financial technology that describes an emerging financial services sector in the 21st century.
  4. Ex-Dividend

    A classification of trading shares when a declared dividend belongs to the seller rather than the buyer. A stock will be ...
  5. Debt Security

    Any debt instrument that can be bought or sold between two parties and has basic terms defined, such as notional amount (amount ...
  6. Taxable Income

    Taxable income is described as gross income or adjusted gross income minus any deductions, exemptions or other adjustments ...
Trading Center