Saturday, September 06, 2003
Homo Economicus Vs Homo Sapiens
A few weeks back, I had made a post about the relationship between rising incomes and happiness. In the same vein, the Economist is carrying an article on the implicit rationality of human beings assumed in neoclassical economic thought.
Real people tend to judge their well-being relative to others, not in absolute terms; their actions depend on the way choices are presented; they fear loss more than they crave gain. Such insights form the core of what is known as “prospect theory”. Some economists think that prospect theory can overthrow two centuries of neoclassical thought. Others say that it only gives credence to the idea that people repeatedly make daft mistakes. Is there a way of settling the dispute?
This is fascinating stuff, especially as I read further on the subject. Two papers that link back to this article are -- Neoclassical Theory versus Prospect Theory: Evidence from the Marketplace and Does Market Experience Eliminate Market Anomalies?
Real people tend to judge their well-being relative to others, not in absolute terms; their actions depend on the way choices are presented; they fear loss more than they crave gain. Such insights form the core of what is known as “prospect theory”. Some economists think that prospect theory can overthrow two centuries of neoclassical thought. Others say that it only gives credence to the idea that people repeatedly make daft mistakes. Is there a way of settling the dispute?
This is fascinating stuff, especially as I read further on the subject. Two papers that link back to this article are -- Neoclassical Theory versus Prospect Theory: Evidence from the Marketplace and Does Market Experience Eliminate Market Anomalies?
