Homo Economicus Myth or Reality Essay Example | Topics and Well Written Essays - 1500 words - 1

Homo Economicus Myth or Reality - Essay Example The question which arises at this point is; why do economists use this model of Homo Economicus? There are basically three reasons for this practice:-†¢Ã‚  In real life it is very difficult to accurately predict or explain human behaviour. Therefore, economists assume humans to be perfect i.e. perfectly rational, perfectly self-interested etc. Thus by simplifying humans they simplify their task of economic analysis. [1].†¢Ã‚  This practice enables economists to enumerate their assumptions in mathematical terms which makes them easier to understand. [1].†¢Ã‚  Picking the right assumptions enables economists to generate the desired results. [1].  Ã‚  Prominent economists of the Austrian school like Thorstein Veblen, John Maynard Keynes, Herbert Simon etc. consider homo economicus as an actor in understanding macroeconomics and economic forecasting. [3]. In their view, since perfect knowledge never exists therefore, all economic activity entails risk. Their stress is on bounded rationality and uncertainty in making economic decisions. [3].  Ã‚  Another angle to the concept of Homo Economicus is that â€Å"  Classical economics did not assert that the economizing individual, whether engaged in trade or as a consumer, acts as if the greatest monetary profit were the sole guiding principle of his conduct. The classical scheme is not at all applicable to consumption or the consumer. It did not escape even the classical economists that the economizing individual as a party engaged in trade does not always and cannot always remain true.