What is the homo economicus?

By Richard Wilson AAA
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. What's the difference between a market economy and a command economy?

    Set by supply and demand, a market economy operates through a price system; in a command economy, governments control the ...
  2. 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 ...
  3. Why is Game Theory useful in business?

    Game theory was once hailed as a revolutionary interdisciplinary phenomenon bringing together psychology, mathematics, philosophy ...
  4. Why aren't economists rich?

    "If you're so smart, how come you're not rich?" is a question that economists seem to invite. If they can explain the intricacies ...
RELATED TERMS
  1. Outcome Bias

    A decision based on the outcome of previous events without regard ...
  2. Hindsight Bias

    A psychological phenomenon in which past events seem to be more ...
  3. Centipede Game

    An extensive-form game in game theory in which two players alternately ...
  4. Cournot Competition

    An economic model that describes an industry structure in which ...
  5. Traveler's Dilemma

    A non-zero-sum game played by two participants in which both ...
  6. Matching Pennies

    A basic game theory example that demonstrates how rational decision-makers ...
Related Articles
  1. How Advisors Can Help Clients Stomach ...
    Investing Basics

    How Advisors Can Help Clients Stomach ...

  2. (Un)Mapping the Trend
    Charts & Patterns

    (Un)Mapping the Trend

  3. Technical Analysis Strategies for Beginners
    Trading Strategies

    Technical Analysis Strategies for Beginners

  4. Traits of an Elite Trader
    Trading Strategies

    Traits of an Elite Trader

  5. Swing Trading Indicators: For Those ...
    Trading Strategies

    Swing Trading Indicators: For Those ...

Trading Center