Homo economicus

Homo economicus [ hɔmo ɔe̯kɔnɔmɪkʊs ː ] (Latin homo economicus, economic man ') also rational agent, is in economics and game theory, the theoretical model of a Nutzenmaximierers to describe human action. In macroeconomics, this model is also often used as a so-called representative agent to describe social processes.

The model is used to explain basic economic relationships and is the basis of many economics models. A common misconception about the homo economicus is that it describes a purely selfish people. Homo economicus fact only describes a model of a person who satisfies those rationality assumptions that make any preference relation a preference ordering.

The model describes a man (often called Agent ) that can form a clear Präferenzenordung before deciding on all possible alternatives and then chooses to, according to his preferences, best alternative. What intrinsic motivation to his preferences is based, is not described here.

The decision of a homo economicus can be represented as maximizing a utility function. The principle of utility theory is of fundamental importance for both microeconomics as well as macroeconomics.

• 3.1 Time consistency and time inconsistency
• 3.2 Example of time inconsistency

• 4.1 Decision under Risk
• 4.2 Decision under uncertainty

• 5.1 The image of the "selfish " Homo economicus
• 5.2 Description in the theory of consumption
• 5.3 rationalized and Expressed preferences
• 5.4 Example for rationalizability: demand in Partialmarktmodell

• 6.1 Individual and collective rationality
• 6.2 The representative agent
• 6.3 Limited heterogeneity

• 7.1 Classic consumer model
• 7.2 egoism and altruism
• 7.3 Intertemporal consumption decision

• 8.1 Selfish people image
• 8.2 rationality assumptions
• 8.3 Verhaltensdeterminante

Conceptual history

The English expression is used John Kells Ingram economic for the first time in 1888 in his book " A History of Political Economy "; the Latin term homo economicus used probably for the first time Vilfredo Pareto in his " Manuale d' economia politica " ( 1906). Eduard Spranger described in 1914 in his " Psychology of the theory of types " homo economicus as a way of life of Homo sapiens and described him as follows: " The economic man in the most general sense, is the one who will prepend the utility value in all the relations of life. Everything is for him to means of preserving life, the nature liable struggle for existence, and the pleasant way of life. " Friedrich August von Hayek, according to John Stuart Mill had the homo economicus introduced into the national economy. In neoclassical economics, Homo economicus is generally described as utility maximizers, or in the extended version of von Neumann- Morgenstern expected utility maximizers. It should be noted that the economics of the technical term " benefit" is subject to different interpretations and historical transformations.

Homo economicus as a rational agent

Definition

Homo economicus is a model based on a fictional actor whose preferences satisfy the rationality assumptions of the preference order. If this is the case, the preferences can be represented by an ordinal utility function.

In the following, it is assumed that there is a finite or infinite number of states of the world, between which the actor can be clearly distinguished, and that the set of all possible states of the world. The states of the world describe actual hypothetical situations faced by the agents. States of the world are typically characterized by properties such as the amount of consumed goods, the social situation, health or the ecological environment situation of the actors. In the theory of consumption usually referred simplistic a vector that expresses how much is consumed in each of the given n goods.

Rationality assumptions

In the following, means that the agent is indifferent between and. This means that the agent can not tell which of the two states of the world he prefers. means that the agent strongly prefers over.

A preference relation over is called rational if:

• Completeness ( i) in this case means that the agent for any two states of the world really knows if he is indifferent or prefers one to the other. In order to exclude cases in which the agent can not decide.
• Reflexivity ( ii ) is a rather technical assumption: Have I to decide between a state and the same state, then I prefer neither of the two states one before strictly. So to be excluded that other " random " criteria that are not included in the description of X, are relevant for the decision.
• Transitivity ( iii ) is a strong substantive assumption about preferences. Transitivity allows that one can infer from preferences to other preferences, so that the preferences themselves are consistent ( see also Transitivitätsannahme ). Transitivity is the behavior assumption, which is most problematic.

Rationality here is not to be equated with the usual concept of rationality but corresponds to the rationality in the sense of preference axioms. Therefore, rational behavior in economics is not meant judgmental and irrationality does not mean that the behavior does not follow a fixed rule, but only that the above assumptions are not met.

An agent who meets the behavioral assumptions, ie homo economicus.

Examples of irrationality

The Rationalitätsanahmen of Homo economicus seem rather harmless at first glance. However, there are some examples of decision situations in which they do not apply:

Example 1 ( framing effect; without reflexivity ):

If an agent is invited to drink coffee or tea, he accepts the invitation and chooses a coffee. But if he be invited to drink a coffee or tea or maybe smoke a joint, he rejects the invitation. This is because it consists of additional options ( here can smoke a joint ) obtained additional information to influence his decision, even if the additional alternatives are not elected.

So he is not indifferent between coffee and coffee, because the decision also depends on irrelevant alternatives. This effect is called framing effect.

Example 2 (cyclic preferences; without transitivity ):

The agent rated 3 freight (Good 1,2,3 ) with three criteria (characteristic 1,2,3). A Well, he prefers another if it occupies a higher place in two features. So Good 1 Good 2 is better than 1 feature in at # 1 and Feature 2 at # 2 and thus for both characteristics It is therefore

Good 1 Good 2

Overall applies with this assessment but then:

Good 1 Good 2 Good 3 Good 1

A trader can easily take advantage of the agent:

The agent possesses good 1 A dealer could offer him now in against a small payment against Good 1 Good 3. Because the agent Good 3 Good one prefers, he 's ready. Then the merchant offers the agent against another small copayment Good 3 Good 2 against exchange. The agent agrees. After that will be exchanged in the same way Good 1 Good 2 against a third small payment. The agent then has again Good one, but has become poorer in money and the trader has made ​​a profit. This case of circular preferences is no preferential order and violates the Transitivitätsannahme.

Example 3 ( perceptibility; without transitivity ):

There is a good with a steady feature and someone wants y is particularly large. y can, for example, be a sign of quality. But if it is a small value at which one is indifferent whether now y Epsilon is higher or not (), then it would follow from transitivity that a y does not matter.

You can work around the problem by converting the continuous parameter in a discrete feature. So, for example, with. About this feature transitivity would then met again (if ).

The corresponding utility function

For Päferenzenrelation the function is called the associated utility function when

This equivalence relationship between preference relations and utility function simplifies the mathematical handling of the decisions of the homo economicus. For example, can easily show what it means to speak of Homo economicus as a utility maximizers: That state of the world that maximizes the utility function of the agent over all possible states of the world is precisely the possible world state which the rational agent and any other possible state prefers and is therefore chosen by him.

In the microeconomic theory of consumption of benefits under a budget condition (or budget limit ) is regularly maximized. The budget condition excluded from some formally possible, but practically not achievable for the agent states of the world. A budget condition is often important in determining the optimum from the viewpoint of Aganten state of the world, because in many situations there is no local saturation point is present, but a maximum budget for the purchase of goods.

Intertemporal decision

Time consistency and time inconsistency

Often, people are faced with choices that they make over several periods ( for example, if you consume or save, makes an education or go to work directly, a pension scheme closes, etc.). This distinction is usually made between two types of preferences or utility functions, namely, time consistent and zeitinkonsistenten.

A time- consistent preference ordering is when a decision not only changes as time goes by. The agent therefore maintains its decision on a future activity, no matter how far in the future, as long as he does not get any new information. In case of modified information a decision can, however, even in time- consistent preferences change (for example, new information about future wages, interest rates, inflation, etc.).

A zeitinkonsitente preference order exists when a decision will change just because the decision point is different. Simply put, if it is important for tomorrow for a decision on whether they will be taken today or tomorrow, even if tomorrow the information situation is the same as today. A typical zeitinkonsistentes behavior is when a person an unpleasant duty continually pushes ahead of it. However, such behavior is rational, as long as it meets only the above three preference axioms. In many applications it is, however, excluded by assumption.

Example of time inconsistency

An agent must decide whether to make something today or tomorrow (for example, an unpleasant activity such as cleaning up the basement or go to the doctor ), what good is it in the future, but it is uncomfortable today. He can do today and not tomorrow, not today and tomorrow instead or in both periods not. His utility function is

The benefit of his three alternatives is:

Alternatively, the preferences of agents can be represented with the following order of preference:

Its optimal decision is therefore to perform the activity tomorrow. But since he is facing the same problem tomorrow, he decides tomorrow to do the job the next day. This utility function therefore describes an agent which, although it makes every day, morning clean up the basement and this decision also seriously true, but still it never does.

Decision under uncertainty

Decision under risk

The decision situation

Decisions under risk are microeconomic often modeled as a lottery. The interpretation of a lottery is that the environmental conditions arrive each with probability. Now, when a homo economicus must choose between two lotteries and and has a utility function over all possible lotteries, allows the expected utility theory from an existing preference relation over a Päferenzenrelation about to form.

A decision under uncertainty can also be used to render a decision under imperfect information. For this purpose, the candidate according to the imperfect information environment states are counted with their subjectively assessed probability.

Axioms of expected utility theory

( i) rationality:

Be with, then applies

Be, which have the same probability distribution. Then we have

( iv ) Independence:

Be and then applies

• Rationality ( i) in this case means that the usual preference rules also apply to lotteries.
• Continuity ( ii ) can be interpreted to mean that even if the difference between two lotteries one is extremely small always preferred the lottery which offers better alternatives. Note that if go to 0, the lotteries converge towards each other, but there is still better than indifference applies only in the limit.
• Reduction ( iii ) means nothing more than the presentation, so how you write the probability distribution over the alternatives, does not affect (rather technical assumption ).
• Independence ( iv ) means that a third alternative does not affect the preference order has when it occurs in all lotteries.

Theorem of Neumann -Morgenstern

If the axioms of expected utility theory are met, you can represent the preferences of the agents through an expected utility function. Conversely, their behavior also apply to all agents through an expected utility function can be represented the four axioms of expected utility theory for the underlying preference relation over all possible lotteries.

This extension of Homo economicus as Erwartungsnutzenmaximierers (as opposed to pure utility maximizers ) is used in microeconomics usually for decisions under uncertainty and is specifically for the game theory is crucial.

Decision under uncertainty

The decision situation

A decision under uncertainty is a decision in which the agent the result can not be sure. If the agent has a rational preference ordering over the possible outputs, but the probabilities does not know and does not want to estimate due to any a priori information, it is a decision under uncertainty. It is therefore in a sense, a lottery in which the probabilities are unknown.

If you modeled a person 's decision, despite the sparse information chooses an alternative, it requires a decision rule. This decision rule should depend only on the possible outcomes in a rational agent. If on the outputs there is a rational preference ordering, there is also a utility function.

Following widespread decision rules describe a possible decision type, in which again a rational preference order is created on the uncertain alternatives. Here it is not so important which decision rule is chosen, but that there are plausible decision rules that represent a decision under uncertainty.

Namely, this means that it is quite plausible, even with uncertainty, that a rational preference ordering over the decision alternatives exists.

Minimax rule

The minimax rule is a very pessimistic decision rule. In this case the agent wants to choose the option that inflicts the least potential harm. Selects the alternative, in which the benefits of the worst result is the highest.

This is the i -th output of option ( lottery) j.

Maximax rule

The Maximax rule is the optimistic counterpart to the minimax rule. Here, the possibility is chosen which provides the highest potential benefits. The agent selects the alternative in which the benefits of the best result is the highest.

This is the i -th output of option ( lottery) j.

Hurwicz Rule

The Hurwicz rule is a weighted mixture of minimax rule and Maximax rule. The two rules are here ( with 0 ≤ ≤ 1) weighted by the so-called optimism parameters. This represents an agent who is both the best possible and considered the worst possible outcome in the decision.

This is the i -th output of option ( lottery) j.

Laplace rule

In the Laplace rule, the agent takes, for lack of information, for all possible outcomes of the same probabilities. Then he makes it a expected utility function. The Rule provides the possibility of a decision under uncertainty in a decision to transform under risk.

Homo economicus in Classical Political Economy

The image of the "selfish " Homo economicus

In the analyzes of classical political economy of homo economicus is usually described as " selfish". This is because the classical homo economicus for the environment states only is the use of the agent described is used. This image of homo economicus is widespread, but it describes only a special case. Indeed, one can model with the model of homo economicus many behaviors between pure egoism and pure altruism, as the subjective motivations for the construction of the preferences of the agents are not restricted to selfish motivations.

It is therefore necessary to note here that " consumption" in the modern consumer theory is a formal concept and summarize the environmental conditions vectors of any goods. These items can be, for example, gifts to other people or donations. So you can, formally speaking, include the use of other agents. In the classical theory of consumption, as it was represented the end of the 19th century, for example, Francis Edgeworth, William Stanley Jevons, Léon Walras and Vilfredo Pareto, the Kosumvektor has been described as the actual consumption of the agent. However, this old picture of Kosum is still very present in the public consciousness.

Description in the theory of consumption

In consumer theory describes the vector for n any goods 1, ..., n is the consumed quantities of n goods. So the agent of good i, the set of all possible consumption vectors of the n goods consumed is called the consumption possibility set.

A preference function over the consumption possibility set with Kosumverktoren defined is equivalent to the general definition:

A homo economicus maximizes his utility over their own consumption, so its Kosumvektor, corresponds to the model of Homo economicus in classical political economy. A utility function is in this case an n-dimensional function.

Rationalizability and Expressed preferences

In many interpretations of human action the image of the purely selfish homo economicus seems very restrictive and not realistic. It has, however, to analyze a very simple and self-consistent way actions. In this sense, the homo economicus acts as an important element in the research program of neoclassical theory: On the basis of methodological individualism and subjectivism (see consumer sovereignty ) is to conduct first to the simplest "rational " rules of conduct are returned. Therefore, often the inductive view is replaced on this special case of the model by a deductive point of view. It is then not closed from the model behavior of Homo economicus on yet unknown real behavior. Instead, observed behavior - if at all possible - as modeled behavior of homo economicus. So instead of this explanatory model rather a descriptive method.

This means in particular that ( the so-called representative consumer ) should be placed on an observed behavior of several people, for example, of an observed demand curve of a gut, an associated potential benefit function of the average consumer about its consumption. A behavior from an associated representative utility function can be derived is called rationalizable. The associated preference relation is said to expressed preference relation ( engl. revealed preferences).

The interpretation of this approach is that one can infer from the existence of expressed preferences and a representative consumer that the real people rationally (in the sense of rationality assumptions of the preference function ) behavior, but only that their behavior in these ways can be described. The existence of a representative consumer is thus a weaker assumption than the existence of Homo economicus.

Since this method does not provide any valid assumptions about the individual consumer, this method is most often used to gain a selfish representative agents from the behavioral functions, such as demand functions.

Example of rationalizability: demand in Partialmarktmodell

Where we have given an invertible and integrable demand function, where p is a price and x is a Requested quantity on a Partialmarkt is, then, for the utility function of the representative agent

If we assume a quasi-linear utility function. The associated preference relation is then given by

Or if you use that the price is

Homo economicus in macroeconomics

Individual and collective rationality

Although all societies are very different from individuals, but also for them to take decisions between alternatives. Also on societal decisions the rationality assumptions of homo economicus can be created.

For example, suppose there lies a society with three people and had to decide between the three alternatives A, B and C. We assume that an alternative by the company over another alternative is preferred if it is preferred by more people. If distributed as shown in the table, the preferences of the three people is easy to see that any two people prefer AB, BC prefer two people and two people prefer CA:

A B C A

Such a constructed social preference ordering is not transitive, and therefore violates the rationality assumptions. This result applies even if all three persons ( or all members of a society ) ever taken alone have completely "rational" preference orderings.

There is at first sight no plausible reason why social decisions should adhere to the axioms of the preference order is. However, there are some situations in which in macroeconomics, the so-called model of a representative agent is advantageously applied.

The representative agent

A representative agent is a homo economicus, which represents the decisions of the whole society. The modeling of the preference relations of a company by a representative agent can thus be established that all individuals are sufficiently equal in the given decision situation. However, there are a broad class of heterogeneous individual utility functions that can be represented by a common utility function, for example, Gorman aggregatable utility functions.

That the representative agent model goes back to the late 19th century. Francis Edgeworth (1881 ) used the term " representative unit " and Alfred Marshall ( 1890) introduced the term "representative firm" one.

The need for a micro-foundation of societal choices was particularly motivated by the Lucas critique. This expresses that change purely econometrically estimated behavioral equations and their parameters by political decisions. Total - social behavior is thus also influenced by expectations that do not occur in purely parametric models, which consist only of behavioral equations.

An example of this is the Phillips curve. It provides in its original form a statistically estimated relationship between unemployment and inflation dar. However, when the policy was trying to reduce unemployment targeted by higher inflation, it came to stagflation, ie high inflation and high unemployment. In the New Keynsanischen model example that the Phillips curve is derived from the behavior of a representative agent and a representative firm, the Phillips curve is derived in its expanded form. This then depends on Infaltionserwartungen, mark-up shocks and technology shocks from, which explains how it can lead to stagflation.

Limited heterogeneity

In some models to describe processes within a society, for example through redistributive effects, the model is a representative agent without significance. However, since a model with complete heterogeneity - ie in which all people have different utility functions - is very complex, thus limiting the value decreases, a model is often preferred with limited heterogeneity.

In such a model, it is assumed that a society can be divided into disjoint subsets, each being represented by a representative agent. Example, one could with two representative agents (eg, poor / rich, savers / borrowers, Old / Young, ...) ( ... such as inflation, economic growth ) describe the redistributive effect of macroeconomic variables.

In general, one could of course any form many sub-groups, each described by a representative agent. However, usually takes more subgroups the meaningfulness from but the realism. Therefore, many simplified models are limited to two or three representative agents with different utility functions, budget constraints or sources of income.

Another way to make the complexity of complete heterogeneity manageable, this is to accept only one characteristic ( eg income, discount factor parameter in the utility function ). This can in some situations lead to more realistic -looking statements as a description with two or three representative agents. However, many parameters must be kept constant for all agents in the society in general, so that the model has a solution and thus a semantic content.

In general, with limited heterogeneity always a trade-off between expressiveness and realism before.

Examples of models of rational behavior

Classic consumer model

Suppose an agent has a continuous, strictly increasing and differentiable utility function over his consumption of n goods, where m is his income and the prices of goods. Its consumer problem is then

The solution to this problem, which then depends on prices and income, is called the Marshallian demand function.

Egoism and altruism

Suppose the agent i has a utility function over his own consumption and the consumption of the other members of society. This is a continuous, strictly increasing and differentiable utility function. Let the utility function of the agent

This means as much as that i own consumption is just as good as from the consumption of other people. When the agents of the consumption of other people does not matter, while in the own consumption does not matter. It is then only a complete Alturisten. In all, the agent is not completely selfish nor altruistic.

One might even describe a consumer objectors or ascetics or harm loving people who are looking forward to when it comes to other people bad.

Maximizing this utility function could be, for example, under the constraint that it can donate and be able to increase the Komsum other people. So for given initial consumption

Note: Although this utility function can describe a partially or completely altruistic people, this does not mean that any moral or ethical stance is assumed. For example, describe a person 's utility function, which gives out a certain social pressure out ( social desirability ) or someone who wants to present himself with it. On the other hand, it can of course also describe a compassionate people. One motivation of the action is an interpretation beyond the model. The model describes only the action ( here: the donation ) itself

Intertemporal consumption decision

Suppose that the agent wants to maximize his consumption over several periods, its consumption is in period t. Then, for a continuous, monotonically increasing and differentiable period utility function, the intertemporal utility function

This utility function is time- consistent. This means that at all time instants t, the optimal solution is the same. Otherwise, his preferences would change over time. If the agent can borrow on capital markets of unlimited capital or create r at a fixed interest rate, calculated as the maximization problem with the lifetime income m

Here, the Preisnieveau and real consumption in period t.

Criticism

Selfish people image

Homo economicus is often criticized as a selfish man. But this form of criticism is, although very often represented in two ways wrong. First, the Homo economicus does not posit selfish humans and secondly is the homo economicus - at least the part of the economics - conceptualized as a descriptive model of behavior, not as a normative image of man. For the description of human behavior via preferences indeed represents how a person behaves, but it is not meaningful about why someone behaves as he does, or even what to do in an ethical sense. The statement that a person has a condition over another prefers says nothing about his motives. But an anthropological image of man needs a description of the nature of man, so his intrinsic motivation. This aspect does not have the purely descriptive model of Homo economicus.

Rationality assumptions

It may be doubted quite how well fit the rationality assumptions of the preference relation to real human behavior. The above examples of irrationality represent three classical situations in which a person does not behave according to the rationality assumptions.

In addition, missing information or random influences can play a role. The additional assumptions to an expected utility maximizer or follow a decision rule with uncertainty (eg minimax rule ) are strong assumptions that are not always justify.

There are some situations in which a person can not say what state he is better off without that he is really indifferent. Uncertainty and lack of information can result in incomplete preferences, there's a real man can not say, or wants, what he's preferences under uncertainty or risk. In addition, missing or unaccounted information can also lead to distortion of the preference order. An example would be a customer who has an alternative that he forgets. In such form, the framing effect would a consumer when choosing between good A, B and C, A company, if all the alternatives to him are equally present, but B, if for whatever reasons, option A is not aware of, although he the possibility has. To assume that one knows all of the alternatives that you own, is often not a realistic assumption, especially when there are many alternatives. This in turn leads to a lack of reflexivity.

Transitivity is also sometimes not available when preferences of people over very many alternatives look at. The person may bring lose track of the alternatives. This can happen even if you deliberately tried to call transitive preferences. That keeps the felt appreciation to the transitivity rule, is not self-evident.

However, the homo economicus is of course only one model, which is a simplification of reality. When it becomes problematic as a model and when he delivers a good description depends on the individual case.

Verhaltensdeterminante

The model of Homo economicus only describes the individual appreciation for different states. However, the main purpose of the model is to model decisions. The model implies that, if the preferences of a person can be represented by a rational preference relation, the decision falls to the alternative that achieve the maximum benefit.

However, there might be situations in which a person can indeed make a clear preference ordering over its alternatives before deciding, but short-term changes its decision. People can act, for example, forgetful, impulsive, confused, emotionally or short-sighted. It can thus other criteria for a decision to play a role as a well-understood benefits of the decision maker. In other words, it may happen that a person chooses an alternative that he himself does not einschätzte as the best alternative before deciding. Herbert Simon suggested, therefore, consider instead of Nutzenmaximierers the " Nutzensatisfizierer " to, ie, a model man who wants to keep his utility level only at an acceptable level. Such a model would assume that people also deliberately choose a second-best alternative, because they change spontaneously or short-sighted reasons, their behavior during the decision. However, the concept of Nutzensatisfizierers implies an alternate, content meaty concept of utility.

Homo economicus in other sciences

In political science, the model of Homo economicus found inter alia in the decision theory and the new political economy application. Among the numerous applications in geography include, for example, the Thünen rings or Walter Christaller's system of central places. In industrial psychology, the expression of man is used instead of the model. Because the reflected compared to early cultures deal with issues of economics, the term Homo economicus place in the history of science for the economic citizen of Greek antiquity.