Thursday, October 12, 2017

Homo Economicus still very much alive

"Richard Thaler Wins the Nobel in Economics for Killing Homo Economicus," wrote The Atlantic when the winner was announced early this week. Thaler's work is fantastic; Homo Economicus, however, is still very much alive. Homo Economicus has long escaped the unsafe place of economic theory and become an ethical standard, immune to theoretic attacks like that from Thaler. Man be systematically irrational - the establishment of which is theoretical progress - but for irrational we have learned to read "stupid." Homo economicus should be our aspiration. Having escaped theory, homo economicus keeps legitimizing free markets on which firms can freely exploit the many predictable irrationalities behavioral economics reveals. And so it comes that two supposedly theoretical antagonists - neoclassical and behavioral economics - are in bed together. But when behavioral economic knowledge is mobilized in the public realm, to actually help people make better decisions - which is what Thaler's famous book Nudge, coauthored with Cass Sunstein, is about - it is immediately controversial and gets framed as an infringement of self-determination. Behavioral economics is great, but it did not kill homo economicus. To kill it, we need to stop letting economists determine what is rational and what is not.

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