Being Human: Rational Models of Sapience
Dr. Suresh, associate professor of economics at Davidson College, took an economic approach to explore what it means to be human. He drew a stark distinction between the term homo economicus, or the economic man, and the actual man. Social scientists, specifically economics, have adopted this term in order to make models and theorize. The economic man acts rationally and works to maximize utility. However, the actual man does not behave in this way, so why do we act as if he does in our economic models? Dr. Suresh explained that humans are really like Homer Simpson—that is, we are irrational, lazy, impatient satisficers. He went on to explain that it is impossible to perfectly account for human behavior. In this aspect, economics is harder than physics. Imagine how hard physics would be if particles could think! This is the problem with modeling economies.
Though humans are irrational, we are irrational in predictable ways which can give us some optimism in our chances of modeling human behavior. There are evolutionary bases for our behavioral biases. In a fairness study, scientists gave one monkey grapes and the other monkey cucumbers. The latter monkey was outraged at this inequity and began throwing the cucumbers back at the scientist. Economists have not yet discovered how to account for this human concern for fairness, but it is clear that this is a universal human concern.
A major problem lies within the fact that we do not know what the probabilities of certain outcomes are, which is essential in modeling and theorizing. Not only do we not think rationally, but we also think with our emotions, or, in Keynes’s words, our animal spirits. We think with our emotions and are prone to react to psychological influences. When firms are excited by what is going on around them, they will likely be more ambitious. This heterogeneity and apparent unpredictability of human behavior lead to a profusion of results
More Characteristics of the Actual Man:
- Loss Aversion
Dr. Suresh explained that his students were much happier with their 88 when he marked out a lower grade and replaced it with a higher grade. Students were outraged by the second situation! Consumers are more responsive to losses than they are to gains due to this aversion to or fear of loss.
- Scarcity makes people act less rationally. This is comparable to students who act less rationally under stress.
- Hyperbolic Discounting
In the short-term, people will choose smaller, immediate rewards. For example, when given the option of receiving $1000 today or $1015 next week, most people would choose the former option. In the long term, however, people are less impatient. When given the option of receiving $1000 in 1 year or $1015 in a year and one week, most people would choose the latter option.
- Identity Economics
People are less concerned with monetary incentives and more driven by their concept of self. We are responsive to societal norms and notions as to what is proper and what is forbidden. This helps explain why people who are in the same economic situations make different choices.
In his research, Dr. Suresh is using simulation agent-based modeling in hopes of creating more realistic models. Current models create the illusion that all humans are similar. This assumption is incredibly constraining. Dr. Suresh acknowledged, however, that there is no way to make a unified model without making these generalizations about human behavior. He explained that economists should be humble and show humility by explaining the ways in which their models are flawed. Dr. Suresh believes that though we will never be able to perfectly model human behavior, we can create models that have realism in terms of the question or topic under study.