Homo economicus in the face of the bounded rationality of the average person

Abstract

This paper examines two pivotal concepts in the field of economics: homo economicus and bounded rationality. The concept of homo economicus represents a theoretical model that depicts individuals as fully rational, self-interested agents whose actions aim at maximizing personal utility. This paradigm underpins economic theories that align with this perspective, such as those advanced by Adam Smith and utilitarianism, where decision-making is driven by the pursuit of efficiency and individual benefit. Conversely, the theory of bounded rationality, introduced by Herbert Simon, recognizes the cognitive, temporal, and informational constraints that limit individuals' ability to make fully rational choices. Due to these limitations and environmental complexities, agents often seek "satisficing" rather than optimal solutions. This notion is further elaborated by Daniel Kahneman and Amos Tversky, who explore cognitive biases and heuristics that influence decision-making, including phenomena such as loss aversion and the anchoring effect. This article contributes to a nuanced understanding of the limitations and strengths of each theory and their implications for the development of more effective public policies.