ECONOMICUS!

SOCIOLOGICUS
HOMO ECONOMICUS

ABSTRACT

The homo economicus is a simple, widely used and largely discussed tool in Economics as well as in other social
sciences. A typified man with given preferences that only cares about maximizing his utility can be used as a simple
and effective device both for the explanation and the prediction of human action in simple settings. When the
characteristics of the situation we aim to explain become more complex though, doubts arise on the efficacy and
plausibility of such a simplified homo. For instance, it has been argued that a homo sociologicus, who mainly cares
about following norms rather than maximizing utility, would be better suited to account for human action within a
society. However, the aim of this essay is to show how the homo economicus can and has been modified in order to
give a satisfactory account of human action in complex, societal settings.

INTRODUCTION

As any first year Economics student knows, homo economicus is an omnipresent ideal device which is
meant to typify human behavior in simple settings. He has some predefined preferences which only need
to be coherent in some specific sense (i.e. complete, transitive) and do not need to be questioned by our
fledgling student. This ideal, clear-minded agent is then thrown in any kind of simple setting (most
commonly one in which only money and goods are at stake, such as auctions or exchange markets) in which
he has some resources and a choice to make with the plain task of maximizing his utility. His choices, then,
are perfectly represented as the solution to a maximization problem, and his actions are meant to describe
and predict real world behavior under similar conditions i.e. trading between countries, financial trading
etc.

Sounds too easy? It probably is, as the notion of homo economicus has largely been criticized on several
levels: the plausibility of such perfect preferences, the shape of his utility function, the validity of his self-
interested motivations etc. In this essay, however, I wish to concentrate only on one of those critiques and
discuss the claim that homo economicus is incapable to account for behavior in complex settings where
norm following is involved. For instance, cooperation in a Prisoner Dilemma (a game in which it is always in
ones best interest not to cooperate with the other players) is both empirically observed and irrational
thus not predicted from the homo economicus perspective. On the contrary, a homo sociologicus, who
mainly cares about following norms rather than maximizing utility, could explain the choice to cooperate
against self interest with the existence of societal norms of reciprocity.

More specifically, I will argue that the objections raised by Heap against the homo economicus in his book
The Theory of Choice: A Critical Guide are imprecise and misleading. Roughly, Heap believes or at least
seems to suggest that the only way to cope with the limits of homo economicus when faced with norms is
either to attribute him false beliefs or to replace him with homo sociologicus. I believe this conclusion to be
incorrect.

First of all, I think Heap arrives at this aut-aut by holding a mistaken conception of what a homo
economicus really is. As we shall see later in greater details, indeed, the homo economicus is not and never
was only moved to action by monetary incentives.
Secondly, I will show how norms have been satisfactorily included in the rational choice theory framework
in a twofold manner. Both the construction of games in which rule following can be advantageous under
certain conditions (i.e. expectations about other players actions), and the inclusion of costs and benefits
from following or breaking a rule in the agents utility function have been widely adopted strategies in the
realm of Economics and the Social Sciences.

Finally, we should be careful in distinguishing clearly the two issues of norm genesis (i.e. how is it that a
norm of cooperation was initially put in place in a particular setting), and behavior under the existence of
norms (i.e. why is it that people vote). In fact, while the former has been explained in rational choice theory
not without some difficulties as the result of infinitely repeated games, or with the creation of
evolutionary game theory; the possibility of explaining behavior under the existence of norms was already,
at least partially, included in rational choice theory, and existing models have only been improved and
refined.

THE TRAGEDY OF THE COMMONS

In his critique, Heap focuses on the so called tragedy of the commons, which is the problem arising from
the conflicting requests of instrumental rationality and norm following in the financing of a collective good.
From the agent perspective, it is rational not to contribute to the common good, as his/her individual
action is not likely to make any significant difference in the final outcome. However, if every agent adopted
this kind of instrumental rationality their collective inaction [would] fail to supply the collective benefit
(Heap, 1992, p.67). Reality is, continues Heap, that there are collective goods and their existence cannot be
explained by rational choice theory.

As anticipated, Heap seems to believe that there can only be two possible solutions to this dilemma. One
response to this anomaly retains the framework of rational choice theory, but ascribes to homo economicus
false beliefs about the efficacy of collective action (Heap, 1992, p. 67). This, though, is not a very
satisfactory answer; as such a persistent and widespread bias would be difficult to explain or to confirm on
an empirical level. Another, and more radical, response is to [...] ascribe the motive to contribute to
collective goods in terms of norms. [...] Once such a motive has been introduced, Homo economicus has
been replaced by Homo sociologicus, since a straightforward desire to act on social norms is what identifies
Homo sociologicus. (Heap, 1992, p.67)

I wish to claim, however, firstly that ascribing a social motive to homo economicus does not necessarily
turn him into a homo sociologicus even though problems of unfalsifiability might then arise; and secondly
that those two are not the only option one has to solve the dilemma.

Heaps argument only considers the tragedy of the commons game, however, it is also a valid one in any
non-cooperative game, as in the above mentioned Prisoner Dilemma. As a consequence, my answer will be
more general in character and refer to any non-cooperative game.

UTILITY = PROFIT?!

Let us start from the idea that a homo economicus can be turned in a homo sociologicus simply by letting
him value norms. On the one hand, it is true that homo economicus is mostly used in settings where money
and goods are all that matters, especially in Economics. On the other hand though, as pointed out in the
introduction, his preferences are only constrained in terms of formal consistency, not in their content.
Nobody thus ever claimed that homo economicus can only care about money or profit. On the contrary, his
aim simply is the maximization of utility, independently of how the latter might be specified. The essence of
homo economicus, in fact, is not in his specific preferences but in his obsession for maximization. If ones
scope is to analyze a social setting in which a norm is in place, and is assuming that the said norm has, to
the agent, a specific, quantifiable intrinsic value, he needs not to drop the homo economicus assumptions,
but simply to integrate this value in the utility function under consideration.

Consider, for example, the several macroeconomic models of habit formation or habit persistence, which,
as Heap suggests we should do, also take into account the social world within which individual
consumption is located, and which provides the norms and standards of adequate and acceptable
consumption(Heap, 1992, p. 71) by making investment choices depend on both profitability and a habit
stock for instance (Carroll, 2000).

It is true, however, that by allowing for multiple utility functions the model proposed by game theory and
rational choice runs the risk of becoming an unfalsifiable one, as any empirical result could be potentially
accounted for by ad-hoc preferences. However, this is not the point made by Heap, nor what I wish to
discuss in this essay. Moreover, as we will see in the next paragraph, other ways to explain norm following
within the framework of rational choice theory have been proposed which need not to be vulnerable to the
unfalsifiability argument.

NORMS FOLLOWING IN RATIONAL CHOICE THEORY

In The rules we live by Cristina Bicchieri proposed a sophisticated solution to the problem of subsuming
rule following to the paradigm of rational choice theory by suggesting that non cooperative games can be
transformed into coordination games1 under certain specific conditions. She describes norm following as
being conditional on contingency (awareness of a rule) and on normative and empirical expectations.

More specifically, the agents empirical expectations describe his predictions of the other players
strategies, in line with the game-theoretic tradition. A necessary condition for the agent to follow a norm is
the belief that the amount of players other than him following the same norm is sufficiently large
(diversely specifiable depending on the game played, i.e. large enough as to secure the financing of the
collective good in the Tragedy of the Commons). In addition, normative expectations capture the
influence society has on the agent by imposing, as a necessary condition for rule following, that the agent
believes a sufficiently large number of players to expect him to follow the norm.

Finally, as a consequence of having utility functions which are sensitive to norms that regulate behavior
conditional on others people behavior (Bicchieri, 2005, p.52), an agent can rationally (in the game-
theoretic sense of the word) choose to cooperate when confronted with a typical non cooperative game
such as the Prisoner Dilemma under two condition. First of all, he has to be a potential norm-follower (i.e.
he must be sensitive to the norm), and secondly, he must believe others to be sensitive to the norm as
well2.

As it will be evident at this point, this is a solution which is perfectly consistent with rational choice theory
and does not need to resort to the concept of homo sociologicus, false beliefs or a straightforward desire to
act according to norm following.

1
Games in which individual and collective benefits coincide and depend on the coordination of the players
2
Sensibility to norm following is quantified in Bicchieris paper by the parameter k
 HOMO ECONOMICUS AS THE FATHER OF HOMO SOCIO-ECONOMICUS

Finally, I would like to point out a further source of confusion in Heaps writings which arises from the joint
and not clearly separated discussion of two very different issues, namely behavior under the existence of
norms on one side and formation of norms on the other.

Heap, in fact, argues that in order to salvage homo economicus academics in the tradition of rational
choice theory have bolstered the thesis that norm following and cooperation really are just the result of
homo economicus pursuing long-term self interest. If this was the case, homo sociologicus would only be
the refined product of an evolutionary process started by homunculus economicus(Heap, 1992).

In justifying the replacement of homo economicus with homo sociologicus Heap argues that the claimed
derivability of the latter from the former is neither supported by evidence nor believable. On the contrary,
he thinks that ..it is at least a plausible psychological conjecture that the acquisition of [the disposition to
abide by norms] depends upon a genuine internalization of the relevant social norms, and not simply a
sharp eyed calculation as to when seeming virtuous will turn out to be profitable. (Heap, 1992, p.68)

The claim is most certainly true when we are considering an agent which already is in a social system that
attributes value to certain norms of cooperation and reciprocity. And it surely is the case that when we do
decide to abide by an existing norm even if we know it will not be in our best interest it is because we
internalized such a rule and gave it an intrinsic value which was the case in the previous section of this
essay.

However, the formation of a norm (especially if we are speaking of social, as opposed to moral, norms) can
hardly be explained in terms of innateness. In fact, it seems far sounder to assume, as evolutionary game
theory does, that initial cooperators acknowledge the long term benefits of norm following (i.e. in infinitely
repeated games), and that the positive behavior then spreads among the remaining population (i.e. by a
mechanism of imitation or learning). As time goes by and generations change, the cooperative behavior is
internalized and accepted as an established norm which might come to have an independent value for the
agents.

For instance, it is undeniable that, through history, our ideals of fairness and justice were modified and
refined (think of slavery, death sentences, womens rights etc.). Regardless of the accuracy or the reality of
evolutionary game theory, it is evident that our change in the conception of, say, slavery is not something
we can explain by an abrupt change in character of a great part of the population, nor with the birth of a
new generation which was suddenly endowed with a better innate sense of fairness. It then must be true
that there exists a mechanism by which we slowly internalize new norms and new interpretations of norms.
However, the notion of homo sociologicus as presented by Heap does not and cannot, on its own, explain
this mechanism, for homo sociologicus cares, by definition, about abiding by existing rules, not about
creating new ones.

Finally, Heap argues that the most important claim against making instrumental rationality (homo
economicus) the deep structure of our character relies upon questioning the notion that an individual can
choose his or her character (Heap, 1992, p.69). However, internalization of norms needs not to happen in
the same generation, so that the problem of character choice needs not to arise.
 CONCLUSIONS

The choice between homo economicus and homo sociologicus is only a pseudo-problem, which arises as the
consequence of a nave interpretation of the notion of homo economicus. As it has been shown, norm
following can be perfectly consistent with rational choice theory in at least two ways: either by assigning to
rule following an intrinsic value in the preferences of the agent, or by defining norms in terms of normative
and empirical expectations. Furthermore, the question as to how norms are formed in the first place is a
separated problem which prescinds from the choice between homo economicus and homo sociologicus.

Chiara Felli
 BIBLIOGRAPHY

Heap, Homo economicus, Homo sociologicus, chapter 5 in The Theory of Choice: A

Critical Guide, Blackwell Press (1992)
Bicchieri, The Rules We Live By, chapter 1 from The Grammar of Society: The Nature and
Dynamics f Social Norms, Cambridge University Presss (2005)
Carroll, Overland and Weil, Saving an Growth with Habit Formation, in American
Economic Review, p.341-355 (2000)