Is Homo Oeconomicus a true proposition?

Homo Oeconomicus theory is one of the foundations of neoclassical economics. It represents the development and implements of the rationality principle in economics as a whole.


There are at least five traits which can be found in homo Oeconomicus model. The first trait is ‘More is better than less’, which indicates that economic activities are always aiming to achieve more of ‘goals. The second trait is that there exists a marginal value which will decrease as more units are added into the consideration of utility. The third trait of Homo Oeconomicus is that the demand curve will always be downward sloped. This is easily understandable as the increased price will draw less interest in buying or consuming. The fourth and fifth traits are the most important regarding the practicality of the theory. It states that every ‘economic man’ will always be selfish and looking for maximised profit within constraints. Because of this assumption, economists can now use an abstract mathematical model to measure real economic activities without worrying about unmeasurable factors such as personalities and the exact amount of desire. In the following paragraphs, the writer will discuss the shortcomings of these features.


The ‘more is better than less’ often face reasoning of ‘More of what?’. If more quantity of goods at the same price is better, then what about the quality of goods? What about the effect on human health when consuming goods? Neoclassical economists often focus on the ‘total value measured by currency’ when considering this concept. This solves the vaguery problem of the definition but causes another problem at the same time. If the whole purpose of economics is to maximise the numerical value of outcomes from society, it will disjoin from the real image of society.


The selfish and profit-driving economic man assumption also have a risk of being unrealistic. Despite the fact that neoclassical economists claim that wealth maximisation has been replaced by achieving and satisfying goals, there is no consensus that to what extend can be defined as ‘goal achieved’. It is still ubiquitous that researchers will presume that the best outcome of their research is to maximise the mathematical value of their model. The other desires of human, such as supporting the weak, educate the society and protect the environment remain to be minor factors in neoclassical economic studies. Ironically, it is in infamous subdivisions of the economics these subjects related to the real world truly shine.


In the writer’s view, the Homo Oeconomicus is a concept which was born under a particular time when rationalisation is the primary goal of every scientific study. The root of pure rationalisation can be traced back to the great discovery of physics. The success of classical physics and later quantum mechanics provided a successful process of scientific study. A pure abstract model will be raised first according to limit observations and hypothetical conditions. Later, experiments and new ways of observations will be designed to verify if it is true. However, Economics is a social science. The initial standpoint of economics is always to understanding human society. If economists try to use hypothetical conditions such as Homo Oeconomicus, they encounter a risk of using some attributes that is not true to describe the truth of real human being. In Popper’s words, it is not a priori valid. Furthermore, because the cost of conducting a confidential scale of experiments or data observation requires an enormous amount of cost, economists who try to verify the authenticity of the theories often find themselves restrained by limited resources and incomplete information( for example, small scale experiment with statistical speculation and historical data with limitation of the times). This further degenerates the procedure which should be working. Another danger comes from the application of the theories because economics is a science which is deeply related to politics. If politicians use an economics theory as the foundation of their social movement, the cost of the theory that is actually false can be devastating to society.


At this point, the writer’s argument entered the same dilemma as Popper’s argument towards the Rationality Principle. Homo Oeconomicus is an excellent approximation to the truth as most of the time, and human behaves like what is described. However, extra caution should be carried when using this assumption. Currently, there is no better theory that can replace it, and it will continually be used until better theoretical replacement appears.  Homo Oeconomicus does not fully capture human behaviour. However, it is the best model neoclassical economists can find at this moment.