Rationality, Self-interest, and Welfare in Contemporary Economics 2 Self-interest

Is homo economicus self-interested? That question might seem as silly as asking whether the Pope is Catholic. Most people, including most economists, would be inclined to say, " Of course. " Indeed the first sentence in the Wikipedia entry for " homo economicus " states that it " is the concept in many economic theories of humans as rational and narrowly self-interested actors. " Economists typically assume that people's behavior responds to financial incentives-which certainly looks like material self-interest. Entrepreneurs aim to maximize their profits. Consumers strive to acquire the largest bundle of commodities they can afford. But man has almost constant occasion for the help of his brethren, and it is in vain for him to expect it from their benevolence only. He will be more likely to prevail if he can interest their self-love in his favour.. . We address ourselves, not to their humanity, but to their self-love, and never talk to them of our own necessities, but of their advantages. Though Smith here allows that people are benevolent, he doesn't think that much will come of it. What motivates people is their " self-love " or concern for their own advantage. So it looks as if interpreting homo economicus as fixated on his or her own narrow material self-interest is amply justified. But the entrepreneur who crushes a union may give away half her income to charity or to a political candidate devoted to an ideology whose implementation might ultimately be harmful to her earnings. The consumer who shops at Walmart rather than the corner grocery to save some money may use that money to pay for his children's ballet classes. The same individual who takes one job rather than another because the salary is larger, may turn the whole pay check over to family members. Conversely, someone may choose a life of financial self-sacrifice 2 in pursuit of the self-interested goal of securing the admiration of others. The connection between so-called " economic rationality " and self-interest is not so obvious as it may appear. Addressing the question of whether economic rationality implies self interest requires clarifying both what mainstream economists claim about human nature and what constitutes self-interest. Self-interest apparently enters economics in four main ways: 1. Via the theory of rationality, which maintains that each individual is motivated only by his or her own preferences. 2. Via the theory of consumer choice, which …