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From Homo Economicus to Homo Sapiens

February 4, 2013

This title refers to an academic journal article by Richard Thaler (2000).  I’m not an expert on academic journals, but I imagine this has to be one of the top 10 titles of all time (and would have probably been #1 if he could have somehow thrown in homo erectus).

In the article, Thaler starts out by pointing out biases we have:

1.  Optimism:  We tend to be optimistic about the future and almost all of us believe we are better than average (just as a reminder, this is statistically impossible.)

2.  Overconfidence:  We also believe we are better forecasters than what we really are.

3.  False Consensus:  We tend to think others are just like us.

4.  The Curse of Knowledge:  Once we know something we can’t imagine what life was like when we didn’t know this.  I know this fact so why don’t you know this.

Because of these biases the future of economics needs to change.  In the past the study of economics was about rationale decisions.  What is the most efficient way to use our limited resources to produce maximum utility.  Unfortunately, it is easy to see we don’t make rationale decisions all the time.  Because of this Thaler argues economics needs to study why people make the economic choices they do and how can we improve our systems to help people make the most efficient choices.  In the 12 years since this was published it is easy to see this trend is happening.  Hopefully, through this research we can restructure how we design products, services, choices to help our society improve.

Question:  Where do you see the biases we have lead us to making poor choices?

Work Cited:

Thaler R.H. (2000)  From Homo Economicus to Homo Sapien.  Journal of Economic Perspectives.  14(1):  133-141.

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