The fabled ECON, an ideal or a farce?
Why are we not perfect like him? And why is that a good thing?
Rodrigo Rivera
Let me introduce you to today’s case study, the ECON. Coined by Nobel Prize in Economics winner Richard Thaler, the ECON (short for Homo Economicus) is a theoretical human, in the sense that they think and make choices through mathematical models. Ie. comparing the benefits minus the costs of each option available to them, and always choosing the one with the highest resultant value (maximizing their utility).
Now, I’d like you to meet my friend, Mr. Econ.
Mr. Econ always knows why he does things, because he knows they are the objectively best thing to do. Mr. Econ would never do something for no good reason, nor would he make a dumb mistake based purely on emotion. He’s perfectly rational, in other words.
If Mr. Econ orders a $200 meal at a restaurant and he ends up hating it, he won’t force himself to eat it just because “he already paid for it”—he knows that he won’t get his money back either way.
When Mr. Econ sees a sale, he doesn’t care that the item is 95% OFF JUST FOR TODAY!!!, nope, he’ll only buy it if he would have bought it anyways at that price, without knowing of the sale.
You should never bet with Mr. Econ ‘cause he’ll only take you up on it if he knows he’ll end up winning over time. In fact, if there’s anything you see Mr. Econ doing, you should probably try to copy him; he knows better than you.
Mr. Econ will steal from a store when the employees aren’t looking, since he knows that he can get free value without any risk. Just like him, you should also- WAIT. That’s not right…
Whatever, we’ll just adjust our formula to add a variable for Mr. Econ’s morality, and we’ll need to assign an ethics value to each and every possible choice. Where are we getting those values from, you ask? Good question! No idea!
Mr. Econ has a girlfriend (I know, right?), and she told him that he SHOULD go ahead and go to his friend’s house to watch the Vikings game with the boys, the same day as their 2-year anniversary. “You can do what you want”, in her words. Perfect, Mr. Econ is great at doing what he wants.
Later that night, his friends get mad when they find out he bet $2000 on the Bears, “because it’s the optimal thing to do”. The boys don’t buy it, and it kills the vibe. As Mr. Econ walks out the door, he notices a text on his phone, “I think we should see other people”. Mr. Econ would be sad, but his utility function doesn’t account for emotions.
You see where I’m getting at? This guy is literally perfect. Perfect at being a robot, that is!
As humans, we do bad things even if we know they don’t make sense. Like, I know that that $19.99 price at the store is virtually the same as $20.00, but boy, does it seem more appealing. Also, I know it’s not profitable to play the lottery—they’re in business for a reason—but I still buy scratch tickets because “What if I’M the lucky one to win $100,000?!”.
We are too influenced by our emotions to consistently act in the way we’d want to. Moreover, how can we even know how good our choices really are, or what we even want in the first place? Just think back to all the bad decisions you’ve made over your life, and how they seemed to be so worth it at the time. Life is confusing by design.
Shocking as it sounds, we humans are actually terrible at making “rational” decisions. But isn’t that beautiful?! This world is full of humans, not Econs, and what makes each of us unique are those differences between our thought processes and our priorities, even if they are not “optimal”.
This world also needs artists, comedians, and service workers, not 8 billion investment bankers and CEO’s. Some of the best things in life originated from initial mistakes—think chocolate chip cookies and velcro. And what kind of metric even is doing things just because they’re “optimal”? No one gets to decide what is purely good and bad.
In his almightiness, what Mr. Econ fails to realise is that there is more to this life than maximizing your utility.
Irrationality rules!