2008 Woodie Awards
Homer (economicus, not Simpson)
Economics for everyone
Stephen Zill
Issue date: 2/19/08 Section: Features
Have you ever done any of the following: been mildly amused at unexpectedly finding $20 in your jacket pocket, yet been implacably irritated at losing $20; been so fed up with waiting for a table at a restaurant that you stormed out the door to go somewhere else; or thought that you should really start smoking less, saving more, or eating better, yet decided that "it can wait until later?"
If you have, it probably means that you are "loss averse," fail to ignore "sunk costs," or "suffer from time inconsistency."
Should you be concerned and consult a physician? Probably not. But according to the standard neo-classical economic model of Economic Man, or Homo economicus, you are acting irrationally.
The good news is you're in great company - almost everyone is, to some extent, "irrational" in this regard. We all tend to get less pleasure from gain than pain from loss. We all tend to forgo great rewards in the future in favor of gratification in the present. And we all tend to make decisions based on costs that cannot be recovered - like, for instance, crying over spilt milk.
So don't worry, even though you might not be a Homo economicus, you're still a Homo sapiens.
During the latter half of the 20th century, in an effort to formalize their field and give it the mathematical rigor of the "harder" sciences, many economists took the concept of Homo economicus to extremes, suggesting that the typical human "actor" always makes logical, self-interested decisions by carefully weighing costs and benefits in a lightening quick manner in order maximize value to himself, and without any regard for altruism or emotion whatsoever. There was only one small problem. Homo economicus doesn't exist.
In response to this extreme example of hyper-rationality, a new subfield of economics has popped up in the last few decades called behavioral economics. This subfield emphasizes the importance of psychological idiosyncracies when it comes to decision-making and, as a result, recognizes that common actions may not always appear entirely rational.
If you have, it probably means that you are "loss averse," fail to ignore "sunk costs," or "suffer from time inconsistency."
Should you be concerned and consult a physician? Probably not. But according to the standard neo-classical economic model of Economic Man, or Homo economicus, you are acting irrationally.
The good news is you're in great company - almost everyone is, to some extent, "irrational" in this regard. We all tend to get less pleasure from gain than pain from loss. We all tend to forgo great rewards in the future in favor of gratification in the present. And we all tend to make decisions based on costs that cannot be recovered - like, for instance, crying over spilt milk.
So don't worry, even though you might not be a Homo economicus, you're still a Homo sapiens.
During the latter half of the 20th century, in an effort to formalize their field and give it the mathematical rigor of the "harder" sciences, many economists took the concept of Homo economicus to extremes, suggesting that the typical human "actor" always makes logical, self-interested decisions by carefully weighing costs and benefits in a lightening quick manner in order maximize value to himself, and without any regard for altruism or emotion whatsoever. There was only one small problem. Homo economicus doesn't exist.
In response to this extreme example of hyper-rationality, a new subfield of economics has popped up in the last few decades called behavioral economics. This subfield emphasizes the importance of psychological idiosyncracies when it comes to decision-making and, as a result, recognizes that common actions may not always appear entirely rational.
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