The Death of ‘Homo Economicus’

Good incentives are no substitute for good citizens.

Human beings, notes Sam Bowles, a Research Professor at the Santa Fe Institute, are complex, psychological beings given to all sorts of motivations well beyond naked self-interest. That might be news to the economics profession, which posits a one-dimensional image of ‘homo economicus’, a rational, utility-maximizing agent, largely driven by the so-called “invisible hand” of the marketplace. Incorporating the disciplines of a multiplicity of social sciences, Bowles produces compelling evidence that self-interested financial incentives can in fact produce behavior that is inefficient and violates a society's morality.

In his work, Professor Bowles has conducted extensive field research, illustrating that humans can evolve as cooperative strategies when they participate in groups that share long-term similar norms and are willing to sanction those that do not follow group agreements. One example he cites regularly comes from behavioral experiments Bowles has conducted in which individuals have the opportunity to divide up substantial sums of money between themselves and others and also to pay for the opportunity to punish those who act selfishly. His research shows that people cooperate not only for selfish reasons but also because they are genuinely concerned about the well-being of others, as they try to uphold social norms, and value behaving ethically for its own sake. Moreover, people punish those who free-ride on the cooperative behavior of others for the same reasons.

This body of research has huge implications for the way we teach economics and, more broadly, construct policy. In our society, we rely on fines and rewards to harness people’s self-interest in the service of the common good, but do we get the balance right? To be sure, the threat of a ticket may well keep drivers in line, and the promise of a bonus likely inspires high performance. But that’s not the whole story: incentives can also backfire, diminishing the very behavior they’re meant to encourage

So what are the implications for the teaching of economics? How do we construct policies to bring out the good nature that is fundamentally intrinsic to mankind, rather than using traditional incentives which appeal solely to rational self-interest? Watch the interview as we discuss these important issues.

[philgwellington]

Well said Professor. I've been saying the same for decades. Amazing that this is news to folks.

[ltube]

Totally inspired by this guy, going to get his book.

[frankl]

What a meaningful experience - Focusing on the powerful motivation of human decency and the interconnectedness of minds. More of this research, please!

[davidbuls]

When i read these comments, it's interesting that intelligent people listen to intelligent topics. These comments are intelligent and thought provoking.

[plough]

Austrian economics is the ONLY economics which takes full account of human behavior and motivation, good and bad.

Its premise: Human beings are goal-seeking and therefore employ means to achieve ends. Because these means are scarce, not all goals are realizable, and thus each person must prioritize and economize. No false assumptions about rational action being only that which maximizes profit, which is the premise of Classical and neo-Classical/"neo-liberal"/ mainstream economics.

The idea of the individual who acts merely as a businessman was the purview of the Classical economists, because they had yet to discover the true origin of value: the subjective valuation of the marginal unit of a given supply of goods, as evaluated by the individual in any particular circumstance. Neo-classical economics errs in attempting to quantify this value, which is impossible. It errs also in failing to account for motivations which cannot be quantified.

Value is a distinction made in the human mind when facing a choice between preferring to trade one resource (e.g. labor) for another (e.g. a bushel of apples, among a supply of a dozen bushels). Do I prefer one hour's leisure, or a bushel of apples? If the latter, the individual engages in trade/exchange. Do I prefer a night in bed with my love, or a night of drinking with my buddies?

Value is comparative, and relative to the individual's subjective evaluation under specific conditions at a specific point in time. It is not objective, nor measurable, nor inherent in any good/resource.

[danielhutchinson]

If we substitute our devotion to money,
with altruism, we can
Devoting our respect to selfish desires
seems to be killing us

[AnimeshSharma]

"you did a very generous thing... in which you didn't expect anything in return, you just did it!, because you felt like it" :) 

Very nice blow to the idea of "Rational Being" so prevalent in Economics! As a subject, if we were such a rational being, mathematics should have been natural to all of us ;)

[stndsure]

Rather than just modeling things like GDP and determining value solely on growth, we need more sophisticated ways of measuring human satisfaction and societal happiness and corporate value. Something like OECD efforts to measure the happiness of individual countries

[김규민-to]

Great video I learned a lot from this. However, to be mathematical or in anyway scientific the assumption of human decision and behavior has to be made. I wonder how our exact feelings and natural behaviors can be observed and be represented mathematically. This question will certainly take a lot of time and effort tobe answered.

[dallaswwood]

Why do critics of mainstream economics conflate "utility maximization" with "purely self-interested behavior"? They are not the same thing. For example, Gary Becker discussed how Alturism could be understood in the context of utility maximization almost 40 years ago. I'm sure Bowles knows this, but the temptation to play maverick is too tempting.

[jackson.cionek]

The Eurocentric view that reduces humans to categories like "Homo Economicus" (focused on economic behavior) and "Social Man" (governed by social norms) is challenged by decolonial neuroscience and indigenous epistemologies. These perspectives understand the mind as deeply connected to the environment and community. The emphasis is on balance and harmony between the body and territory, with spirituality and belonging playing key roles in the formation of subjectivity.

[HariPolitopoulos]

The simple fact that "cooperation", forced, motivated or voluntary is the basis of all our achievements in the last 10 000 years, does not come through in this conversation. What has lifted us from the bestiality of primitive life, from irrigation in Mesopotamia, to Roman roads and aqueducts and to the electricity, transport and information networks of today are the results of "cooperation". The so called free market and competition is one form of "cooperation" but some of our greatest achievements (the world wide web ?) and failures (the atomic bomb ? the destruction of Iraq, Libya and Syria ?) cannot be explained by the assumptions describing "homo economicus".

[stephaniecarrow]

There are plenty of cooperative species in the world: bees, ants, termites, lions, wolves, meercats, prairie dogs, orcas, dolphins, humpback whales among them. Also inter-species cooperation. And there are cooperative human societies, including the Amish, Mennonites, and Shakers. "Survival of the fittest" applied to economics is disproved by nature itself, as well as common sense. Darwin resented the way his theories of natural selection were misused to justify greed and brutality (including slavery).

[HusamuddineIsmail]

Rationality is no more a priori assumption, it is utility maximisation.

[derbezacesanchez]

Our current profit system is driven by debt. Use debt (loans, bonds etc) to create a business, buy land etc.- then pay back the loan with interest. Where does the interest come from? From banks using our currency to lend out to others. Where does the interest that loan repayments come. From other people, but why do prices and wages rise? Because maximizing profit even when it means creating debt by lobbying for Federal Reserve to print more currency is the norm for Wall Street and friends.

[doellison]

It is true you can not motivate everyone by appealing to their self-interest. But those who are motivated by self-interest, and are successful are rewarded with power. What those few possess is a self-interested power to preserve thy self. Others gain other rewards, but only only power can bring the change the professor seeks. However through neoliberalism gaining power through anything other than self-interested/greedy motivation is impossible. Being smart is only valuable as the money you can make with it, not the minds you can enlighten.

[jamesbuchanan]

What of the moral implications of states assuming power to make people do whatever political whims declare is the "right thing"???

[FatFrankie]

Mutual Aid: A Factor of Evolution written in 1902 by Peter Kropotkin
Quite a bit of the work had already been done, you could've read the book and spared yourself some time and effort.
I don't discount the necessity of research and studies on the way humans exist in current times, but there was a base of knowledge which could have provided a foundation to build on, or a launchpad perhaps, which apparently nobody was aware existed, or maybe they did but for whatever reasons discounted it offhand or thought it lacked validity.

[pepechen]

what if individuals were altruistic only when they have enough to spare? when it means survival aren't we all selfish? maybe this should be a factor in a hypothetical mathematical model that attempted to quantify it

[nblumer]

Psychologists have demonstrated 1. Altruism in infants and many mammals 2. Distress over unfairness among infants and mammals. It might seem then seem that altruism and the engrained sense of the merits of fairness is a universal force that is innate in the animal kingdom and does not require a religious explanation