Economic Man

It’s Spiderman...wait, no, it’s Superman...no, it’s Economic man, to the rescue.

Like Superman, Economic man is a not-real being who acts in a way we all can admire. For Economic man, that means acting rationally with complete knowledge, seeking to maximize their personal utility across all areas of their life.

Yep, people don’t act as rational agents with complete knowledge acting in their self-interest, and yet that’s what economists base their models on. Real humans are not simple like economic man. Our not-so-simple economy is simply a reflection of our not-so-simple selves. Which means our nice, clean, mathematical economic models based on homo economicus are fun to play with and think about, but aren’t always practical. The field of Behavioral Economics, which borrows a lot from psychology, has helped us make strides in recent decades in bridging the gap between our models and reality.

In fact, what Keynes actually wrote about was how people aren’t rational. Today’s Keynesian economics that’s actually used is all the nice, mathy bits. One of the parts that’s ignored? What Keynes called “animal spirits” in this book The General Theory of Employment, Interest, and Money. Keynes saw “animal spirits” (instincts, biases, and emotions that guide human behavior) as a key part to understanding economics.

For instance, consumer confidence is an animal spirit that can have a profound effect on the economy. When consumer confidence drops, investors sell their shares and people save up instead of spending money (hello, recession). As you can see, the difference between us and Economic man is huge.