economic man

A theoretical being who has perfect knowledge of an economy and has the ability to act in his or her own interests to maximize profits. The idea of economic man has proved a useful tool in neoclassical economics but other writers suggest that the concept of the satisficer is more realistic.

An imaginary person fought over by rival social scientists. The fights are full of sound and fury but usually signify nothing because of confusions between two meanings of ‘economic man’. In the narrow meaning he is rational and selfish; in the broad meaning, rational but not necessarily selfish. Broad economic man always observes the axioms of behaviour assumed in mainstream economic theory. At the deepest level, these are rules about transitivity, consistency, and completeness of preferences. ‘Transitivity’ means that if I prefer A to B and B to C, then I should prefer A to C. ‘Consistency’ means that if I choose A over B now, then I will continue to choose A over B every time I am confronted with the identical choice in identical circumstances. ‘Completeness’ means that for any goods (services, opportunities) A and B, I can always make one of three choices: to prefer A, to prefer B, or to be indifferent between them. At a less abstract level, economic man is assumed to prefer more of any given good to less of it, but with diminishing marginal utility (so that each extra unit of the good is worth less to him than the one before). More generally, in his preferences for bundles comprising some quantity of one good and some of another, the more he already has of one good the more of it he would require in order to offset the loss of a unit of the other. This is called diminishing marginal substitutability.

All of these axioms are controversial. Psychologists have shown that individuals do not observe transitivity or consistency of choice when the ‘frame’ of the choice is altered. (For instance, people may accept a certain gamble when it is presented to them as a choice between gaining and standing still, but reject the identical gamble when it is presented to them as a choice between standing still and losing.) Completeness is unrealistically demanding. Diminishing marginal utility is not always observed. However, much criticism of rational economic man is for his supposed selfishness, which the axioms of standard economic theory do not imply. Broad economic man maximizes his utility, but if giving money to Afghanistan makes him happier than anything else, he gives money to Afghanistan. Narrow economic man maximizes his personal wealth. Commonly, economics is attacked for assuming that most people are (or, worse, ought to be) narrow economic men; economists defend themselves by claiming that economic man is really broad economic man. However, neither side is consistent in its usage.