David Henderson — Thaler and Caplan on Homo Economicus

For a good laugh.

I guess he hasn't heard of Enron and rampant fraud during the housing bubble, the MERS debacle, and ongoing financial shenanigans. And remember Bill Clinton's reasoning about the Lewinsky affair, "I did it because I could."

I do want to make one criticism of Thaler's view. You might regard it as picky--it might even be picky. But here goes.

Thaler argues that the homo economicus would not take only one to four pennies from the "Take a Penny" tray at checkout counters, but would take them all. I don't think so. And the reason is simple: the person on the other side of the counter would regard him as a thief. Would the retailer call the cops? Not likely. But his reputation with that particular retailer would be damaged. And home economicus would, because he maximizes over a long period, worry about this reputation.

And David Henderson thinks that home economicus would be concerned over taking a few pennies because of long run repetitional erosion? The bank CEOs must be rolling on the floor laughing if they read this. They are the ultimate homines economici. What's irrational about putting millions in the banks and getting away with it. Have they even suffered repetitional erosion in any way that affects them, that is, in their social circles? No way.

Actually, repetitional erosion in the long run is more a characteristic of homo socialis, who cares about social relationships. Homo economicus is only interested in maximizing (economic) utility under an assumption of methodological individualism. Anything legal is rational regardless of whether it is ethical and less where it is moral. It is also rational to look at doing what is illegal in terms of the risk-reward ratio and the probability of 1) getting caught and 2) being punished. That calculus often works in favor of criminal behavior, especially in an environment of privilege and a double standard of justice.

Liberal economics is amoral. It's a science, right? Homo economicus is a foundational assumption of classical liberalism:  Homo economicus is just concerned about pursuing his own happiness through exercise of freedom and taking full responsibility for success and failure, which is his natural right.

Perhaps this is why Thomas Jefferson as a slave owner saw no contradiction in asserting in the US Declaration of Independence, "We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness." And later, perhaps why he viewed breeding slaves when their importation was not longer permitted by law as in his rational interest. After all, it was perfectly legal.

EconLog

Thaler and Caplan on Homo Economicus
David Henderson | research fellow at Stanford University’s Hoover Institution, and an associate professor of economics at the Graduate School of Business and Public Policy, Naval Postgraduate School, in Monterey, California