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QOTD #16 Homo economicus, or economic human, denotes the ide

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QOTD #16 Homo economicus, or economic human, denotes the ide [#permalink] New post 30 Jun 2016, 08:05
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Homo economicus, or economic human, denotes the idea of human beings as rational, narrowly self-interested agents who, given total information about opportunities and possible constraints, seek to obtain the highest possible well-being for themselves at the least possible cost. In the late 19th century, a host of economists built mathematical models based on the conception of real humans as Homo economicus. Exponents of Homo economicus tend to acknowledge that total information is not possible in the real world; thus, breakdown in models based on the concept are due to imperfect information held by the self-interested economic actors. Amartya Sen has pointed out that Homo economicus ignores that people can and do commit to courses of action out of morality, cultural expectations, and so forth. Veblen and Keynes allege that Homo economicus assumes far too great an understanding of macroeconomics on the part of humans. Tversky puts forth that investors are not rational: they are unconcerned by small chances of large losses, but quite risk-averse regarding small losses. Bruno Frey points out that humans are often intrinsically motivated, and that such motivation explains heroism, craftsmanship, and other drives that do not fit neatly into the model of a narrowly focused gain-seeker. Critics of the psychoanalytic tradition point out, somewhat obviously, that humans are frequently conflicted, lazy, and inconsistent.
Consider each of the answer choices separately and indicate all that apply. Which of the following phenomena would exemplify Bruno Frey’s critique of Homo economicus?

  • A woodworker spends months on the delicate inlay of a door, knowing that his many hours of hard work will inevitably result in a higher price when he comes to sell the piece.
  • A television journalist often travels to dangerous countries all over the world because he is contractually obligated to do so, and his ratings are higher the more dangerous his exploits appear to be.
  • An economist dedicates her career to illustrating a fundamental flaw in a particular theory, though she knows there will be no tangible reward for her efforts.

[Reveal] Spoiler: OA
3rd only


Which of the following best describes the main idea of the passage?

(A) Homo economicus is a useful, if theoretical, actor to use in the formation of mathematical models.
(B) Homo economicus is a fundamentally flawed and thus theoretically useless construction, for a host of reasons.
(C) Homo economicus is often criticized by those who don’t fully understand its function in economic theory.
(D) Homo economicus is a problematic construction, because it simplifies human motivations and is overly optimistic about human understanding.
(E) Homo economicus fell out of favor with most economists in the 20th century due to its many incorrect assumptions about humanity.

[Reveal] Spoiler: OA
D


Consider each of the answer choices separately and indicate all that apply.

Which of the following is a complaint leveled against the theory of Homo economicus posited by certain economists in the late 19th century?

  • It assumes that the average person knows a lot more about the general workings of the economy than he or she actually does.
  • It assumes that humans experience a proportional and linear emotional response to all risks and rewards.
  • It assumes that the primary impetus behind human decision making is not predicated on ethics or cultural mores.

[Reveal] Spoiler: OA
1st and 3rd only


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Re: QOTD #16 Homo economicus, or economic human, denotes the ide [#permalink] New post 04 Jul 2016, 17:47
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1. Bruno Frey's argument is that humans are more motivated by heroism, craftsmanship and less on focused gains. Choice 3 fits the description, both Choice 1 and 2 look for tangible benefits.

2. The main topic is why Homo economicus model may not be correct in many situations because of its simple premise that rest on humans as focused gain-seekers. Choice D summarizes it.

3. "Veblen and Keynes allege that Homo economicus assumes far too great an understanding of macroeconomics on the part of humans" This is one of the complain. So choice 1 is in; "Amartya Sen has pointed out that Homo economicus ignores that people can and do commit to courses of action out of morality, cultural expectations, and so forth" This is one of the complain. So choice 3 is in; Choice 2 in fact supports the Homo economicus model, hence not an complain against the model. So choice 2 is out.
Re: QOTD #16 Homo economicus, or economic human, denotes the ide   [#permalink] 04 Jul 2016, 17:47
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QOTD #16 Homo economicus, or economic human, denotes the ide

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