humanbehaviorandeconomics.docVIP

Human Behavior and Economics New Goals for Society by Kenneth Boulding Economists agree that all world lacks is, A suitable system of effluent taxes, They forget that if people pollute with impunity, This must be a sign of lack of community. Conventional economic theory, as described in chapters 8-9, assumes that certain economic behaviors are innate. That is, they are highly predictable across time and cultures. Embedded in this assumption is a core belief about human nature, which turns out to have profound implications for the development of economic theory. It is crystallized in the concept of Homo economicus, which emerges from the discipline’s foundations in utilitarianism and incorporates the following traits: Insatiability. What we really want is more stuff. Put another way, more is always better, and consumption is the major source of utility (i.e. well-being). Perfect rationality. Individuals have stable, exogenously determined preferences (i.e. preferences are not affected by advertising, by the preferences of others, by the number of choices available, etc.), and make choices that best satisfy these preferences in the face of given constraints of time, income and so on. Perfect self interest. Individuals (or at least families) do not care how their choices affect others, and are not affected by the “utility” others experience. Social interactions matter only to the extent they affect one’s own consumption, leisure and wealth. Broader economic behavior is simply the aggregation of decisions by rational, self interested individuals. Though most economists recognize that the assumptions of Homo economicus are somewhat of a caricature of real human behavior, these assumptions nonetheless form one of the central pillars of conventional micro-economic theory. Competitive free markets in theory take advantage of our self-interest to create a system through which competitive, selfish behavior generates the greatest good for the greatest number. Sinc