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 Stuart Mill 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 Mill 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.

RELATED FAQS
  1. What's the difference between agency theory and stakeholder theory?

    Agency theory and stakeholder theory are both used to understand and explain various types of relationships and challenges ... Read Answer >>
  2. What is the relationship between human capital and economic growth?

    Learn what human capital and economic growth are, how human capital is related to economic growth and see examples of the ... Read Answer >>
  3. 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 ... Read Answer >>
  4. How does marginal utility and marginal benefit differ?

    Learn about the different implications of marginal benefit and marginal utility in economics. Find out about the law of diminishing ... Read Answer >>
  5. How does money supply affect inflation?

    Learn about two competing economic theories of the role of the money supply and whether money supply causes inflation in ... 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. Trading

    Understanding the 'Hanging Man' Candlestick Pattern

    A hanging man is a candlestick pattern that hints at the reversal of an uptrend. Here's how to trade it.
  3. Trading

    John Maynard Keynes - Giant Of Finance

    Keynes' "General Theory" will forever be remembered for giving governments a central role in economics.
  4. Insights

    Why Can't Economists Agree?

    Learn the many reasons why economists can be given the same data and come up with entirely different conclusions.
  5. Insights

    Adam Smith and "The Wealth Of Nations"

    Adam Smith's 1776 classic "Wealth of Nations" may have had the largest global impact on economic thought.
  6. Insights

    The History of Economic Thought

    Economics is a vital part of every day life. Discover the major players who shaped its development.
  7. Investing

    Nobel Winners Are Economic Prizes

    Before you try to profit from their theories, you should learn about the creators themselves.
  8. Retirement

    EXDAX: Overview of Top Manning & Napier Funds

    Learn about four mutual funds administered and managed by Manning & Napier that can help investors diversify their retirement portfolios for 2016.
RELATED TERMS
  1. Economic Man

    Economic man refers to an idealized human being assumed to act ...
  2. Rational Choice Theory

    Rational choice theory is an economic principle that assumes ...
  3. Hanging Man

    A hanging man is a bearish candlestick pattern that forms at ...
  4. Fat Man Strategy

    A fat man strategy is a takeover defense tactic which reduces ...
  5. Common Resource

    A common resource is a resource, such as water or pasture, that ...
  6. Keynesian Economics

    Keynesian Economics is an economic theory of total spending in ...
Trading Center