Dirk Helbing — A new kind of economy is born: social decision-makers beat the “homo economicus”

The Internet and Social Media change our way of decision-making. We are no longer the independent decision makers we used to be. Instead, we have become networked minds, social decision-makers, more than ever before. This has several fundamental implications. First of all, our economic theories must change, and second, our economic institutions must be adapted to support the social decision-maker, the “homo socialis”, rather than be tailored to the perfect egoist, known as “homo economicus”.

The financial, economic and public debt crisis has seriously damaged our trust in mainstream economic theory. Can it really offer an adequate description of economic reality? Laboratory experiments keep questioning one of the main pillars of economic theory, the “homo economicus”. They show that the perfectly self-regarding decision-maker is not the rule, but rather the exception [1,2]. And they show that markets, as they are organized today, are undermining ethical behavior [3].

Latest scientific results have shown that a “homo socialis” with other-regarding preferences will eventually result from the merciless forces of evolution, even if people optimize their utility, if offspring tend to stay close to their parents [4].[1] Another, independent study was recently summarized by the statement “evolution will punish you, if you’re selfish and mean” [5]. Is this really true? And what implications would this have for our economic theory and institutions?

In fact, the success of the human species as compared to others results mainly from its social nature. There is much evidence that evolution has created different incentive systems, not just one: besides the desire to possess (in order to survive in times of crises), this includes sexual satisfaction (to ensure reproduction), curiosity and creativity (to explore opportunities and risks), emotional satisfaction (based on empathy), and social recognition (reputation, power). Already Adam Smith noted: “How ever selfish man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it.”[2]

Dirk Helbing, professor of sociology at ETH Zurich and complexity scientist concludes: “The social nature of man has dramatic implications, both for economic theory and for the way we need to organize our economy.” As we are more and more connected with others, the “homo economicus”, i.e. the independent decision-maker and perfect egoist, is no longer an adequate representation or good approximation of human decision-makers. “Reality has changed. We are applying an outdated theory, and that’s what makes economic crises more severe,” says Helbing.

Real-World Economics Review Blog
A new kind of economy is born: social decision-makers beat the “homo economicus”
Dirk Helbing | Chair of Sociology (Modeling and Simulation), Swiss Federal Institute of Technology, Zürich