The Homer economicus narrative: from cognitive psychology to individual public policies

ABSTRACT

A common narrative among some behavioural economists and policy makers is that experimental psychology highlights that individuals are more like Homer Simpson than the Mr Spock imagined by neoclassical economics, and that this justifies policies aiming to ‘correct’ individual behaviours. This narrative is central to nudging policies and suggests that a better understanding of individual cognition will lead to better policy prescriptions. I argue that this Homer economicus narrative is methodologically flawed, and that its emphasis on cognition advances a distorted view of public policies consisting in fixing malfunctioning individuals, while ignoring the characteristics of the socio-economic environment that influence individuals’ behaviours.

KEYWORDS:

• Homer Simpson and Mr Spock
• homo economicus
• rational choice
• replication crisis
• behaviourally informed policy

JEL CODES:

• A12
• B41
• C91
• D04
• D91

Acknowledgements

I am grateful to seminar audiences in Nice, Nancy, Paris, as well as to the participants to the conference The Soul of Economics (2019) and the 15th Biennial Conference of the International Network for Economic Method (2021) for their comments and suggestions on earlier versions of this work. I also thank the editors and two anonymous referees for their comments that substantially improved this paper.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 Note that my argument is not targeted to behavioural economists in general, but only to the theorists – whether they be behavioural economists, psychologists, policy advisors – who endorse this type of discourse. In many academic publications, behavioural economists take extra precautions to avoid bold claims about the possible irrationality of individuals, though this is less the case with public intellectuals such as Thaler or Sunstein (who are however much more influential regarding the design of public policies).

2 See Burr and Dick (2017) for an introduction. A central figure in this approach is Foucault (1977), who studied how discourses – in penal practice notably – define categories and objects of study, and how those categories shape our behaviours (due to the desire of individuals to conform to what is categorised as ‘normal’ in society).

3 More generally, the interpretation of deviations from EUT in terms of biases implies that we model individual behaviour as a departure from the benchmark of EUT. The incremental addition of new biases while being committed to solving optimisation problems (as explicitly advocated by Rabin, 2013) necessarily increases the computational complexity of the problem to be solved. While this is a reasonable methodology – an alternative to the use of optimisation methods would be to develop models of bounded rationality (Harstad & Selten, 2013) – it incidentally implies that Homer might eventually solve an even more complex mathematical problem than Mr Spock!

4 Adequately engaging with the different positions regarding the interpretations of the axioms would lead me astray from the main argument of the paper, so I refer the interested reader to Heukelom (2014, chapter 2) and Moscati (2019, part 3).

5 The precise characterisation of contemporary revealed preference theory also includes the application of the Generalised Axiom of Revealed Preferences and the possibility to apply the theory to non-human entities, as long as they are responsive to incentives.

6 Heukelom (2014) suggests that this was already a point of misunderstanding between Savage (1954) and Edwards (1954) and the developing behavioural decision research approach, the latter equating utility with Lewinian valence.

7 This is the explicit formulation of Aumann and Brandenburger (1995, pp. 1174–1175) in the context of Bayesian game theory (see Lecouteux, 2018 for a similar analysis of EUT in game theory)

8 The behaviouristic interpretation of RPT – and its rejection of any interpretation of preferences or beliefs as mental states – is widely disputed in the philosophical literature, such as with Hausman (2000, 2012). See Thoma (2021a, 2021b) for a discussion of the literature and a defence of the behaviouristic interpretation.

9 Writing on the ‘law of small numbers’, Tversky and Kahneman (1971) propose that ‘psychologists have an exaggerated belief in the likelihood of successfully replicating an obtained finding’ (p. 105) and may as a result have ‘an exaggerated confidence in the validity of conclusions based on small samples’ (p. 106)

10 Tversky and Kahneman’s (1992) experiment has for instance non-salient monetary rewards, and their results report median values for the different parameters (very probably from different subjects). This means that we have no information about the values of the other parameters (curvature of the utility function and probability weighing function) for the median individual whose $\lambda$ equals 2.25 (and no information to test whether this is statistically different from 1).

11 Anecdotally, in one Simpsons episode occasionally used by BE promoters (at least Camerer et al., 2003, Thaler and Sunstein 2008a, the latter thanking Matthew Rabin for the reference) in which a surgeon is hammering a crayon back into Homer’s nose to lower his IQ (he is then saying more and more stupid things and ‘the surgeon knows the operation is complete when Homer finally exclaims: “Extended warranty! How can I lose?”’, Thaler & Sunstein 2008a, p. 87), Homer had such an opportunity (his intelligence was significantly higher with the crayon removed) and willingly chose to stay stupid, as a means to preserve his social relations. If being Homer is a problem from the theorist’s perspective, it may not be the case from Homer’s own perspective.

12 See Guala (2005, pp. 141–160) for a general discussion, and Lecouteux (2021b) on the distinction between small and large worlds in behavioural welfare economics.

13 This is partly because EUT is a good theory for choosing in small worlds, while there are many problems for which it does not make sense to look for an ‘optimal’ solution – e.g. how much to save for one’s retirement for an individual who gets his first job in 2022 (who knows what the world and systems of social security could possibly look like in 40 or 50 years?). Proposing to increase individual savings might be a reasonable policy objective for e.g. macroeconomic reasons, though justifying it because this is what people should rationally do if they were better-informed and less biased mostly reveals a disproportionate overconfidence in the theorist’s ability to predict what the future will be.

14 Note that this position is disputed, as with the ‘boost’ program of Hertwig and Grüne-Yanoff (2017), which aims to empower individuals by enhancing their competences.

15 Sugden (2023), commenting on Sunstein’s paper, notes that this is exactly the whole idea of nudging and libertarian paternalism – and argues that Hayek would very likely have disagreed with Sunstein’s proposal.

16 As noted by Hausman (2016), the assumption that agents have true preferences for certain alternatives does not commit behavioural welfare economists to the ontological claim that there exists a genuine ‘inner rational agent’ within the individual. The argument of Infante et al. (2016a, 2016b) is however that behavioural welfare economists believe that there exists some kind of mode of latent reasoning that would generate neoclassical preferences. In the absence of arguments supporting that a ‘reasoning free from psychological imperfections’ would necessarily lead to complete, transitive, and context-independent preferences (it is particularly difficult to justify that completeness will be realised), we should question even the counterfactual possibility of such an inner rational agent.

17 This is not technically a ‘bias’ as described in the HEN, though what matters for my argument here is the different ways to interpret the same experimental findings.

18 Ross (2023) argues that this is precisely the evolution of the field, with a progressive convergence between economics and sociology (especially thanks to a common interest in networks). This shift can also be observed in Truc’s (2022b) bibliometric analysis of BE, which identifies the recent rise of social preferences and norms as the most studied topic in BE, while observing a decline since the 1980s of publications by behavioural economists in psychology journals.

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Guilhem Lecouteux

Guilhem Lecouteux is Associate Professor of economics at Université Côte d'Azur (Nice, France). His research lies at the intersection of behavioural economics, history of economic thought, and philosophy, and investigates the role of behavioural sciences in the design and justification of public policies.