Great response! Thanks for your insights!

In order to make the rational choices according to their perception of best interest, and for those choices to aggregate into efficient market outcomes, humans need perfect information. Perhaps the assumption of perfect information in un-regulated markets is more of a failure of modern economic policy than the assumption of rational "homo economicus". One reason the reasons for the failures of economic policies is the imperfect information that exists in financial markets, the "under-pricing of risk" resulting from complex financial instruments that most investors did not truly understand the make-up of.

Incentives also matter. The incentive in modern financial markets is to maximize short-run returns even if it means neglecting the long-run risk resulting from asset bubbles. An asset bubble presents an opportunity to self-interested investors who can buy and sell quickly enough to earn short-run returns. The "externality" of such a bubble is that is eventually bursts and spills over to the real economy.

Anyway, lots of things to think about. I appreciate the "Hayek-ian" views of your comment!

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1) The Golden Balls / Prisoner Dilemma.

As anyone who has studied this knows that if you play the game once, you get different results than if you play the game multiple times with the same people. The more you play the game with the same people, the more cooperation naturally occurs. Why? because there are feedback and results – i.e., people learn that cooperation leads to "better" results, so they learn to cooperate.Basically, no matter how you stack the odds, there will be an equilibrium in which cooperation basically wins.

Why? because people are essential rational. Not like Spock, but like Kirk. We trade off and look for the best possible solution given our understanding of the situation and what is in our best interest. In that sense, homo economicus is not a theory, it is a basic description of our experience of human beings…being human. No big deal.

2) The real question hinges on the idea that homo economicus makes their "rational" choices "in solely economic terms." The idea that a choice is "solely economic" is problematic for the following reason (there are others):

Money is only valuable because it purchases non-monetary items, often called "products and services." But what are products and services, but fuel/tools and time:

When we buy finished products, we save ourselves the time of creating them, and get to use them as fuel/tools. (food, clothing, shelter, medical care, transportation, computers, phones, etc.)

When we buy someone's services, we save ourselves from buying/creating the fuel/tools they employ, and the time of performing the service.

The more money we have, the more fuel, tools, and time we have to pursue our non-monetary values (love, compassion, art, dance, entertainment, etc.) In other words, money is simply a symbol of our capacity to achieve and express our values.

Money is the universal translator of values. It is the medium that allows people with completely different values to exchange their services and goods with one another, even if they disagree about fundamental values. It is the universal language of humanity, that allows the butcher, baker, candlestickmaker, yoga teacher, physicist, musician, artist, priest, mullah, rabbi, lama, shaman, and guru to exchange values with one another.

In this sense, saying that homo economicus makes choices in "solely economic terms" is like saying that people make choices based on their perception of what will best achieve their values as they understand them. It is not a theory, it is a truism.

3) People judge their self-interest differently, using different criteria and methodology. My rational calculation is different than yours, because I value things differently than you do. Similarly, John values things differently than Jane, times 6 billion people. I might not like the choices that you and John and Jane make. True. I might think that your choices are self-destructive. True. I might think that society would be better off if you didn't make those choices. True.

4) The question then becomes, who gets to decide what to decide is in John Q Public's best interest: John Q. Public? Or Jane Q. Politician? Should John be allowed to make choices according to his rational calculation, or should he be forced to make only those choices that Jane has authorized, on pain of fines and jail time if he disobeys Jane?

This is where the "fairness" and "equality" comes in. The idea is that government will police people from making bad decisions that "take advantage" of other people or "destabilize" the morals or finances of others.

The challenge with this are three-fold (at least).

- First, Jane doesn't know what is best for John, despite her certainty that she does. Her arrogance does not make her right.

- Second, 530 Janes in congress disagree about what is best for John, making any proposed solution the violation of other's values.

- Third, by using force to change how John chooses, she destabilizes his rational choice making ability, leading him to make choices that reduce his intelligence and ability to plan and partner with others.

- Fourth, those Johns who know how to leverage (cheat/abuse) the regulations in their favor will do so, exacerbating the original problem regulations were meant to solve, and creating new problems unique to the regulations themselves.

- 250 million Johns in this condition destabilizes the market as a whole, leading to systemic corruption and problems that the market cannot solve BECAUSE the regulations get in the way.

End result, in trying to create fairness and equality, the government creates systemic unfairness and inequality. This drives more regulation, creates more systemic problems, driving more regulation.

5) All this leads back to the implicit question this article does not address: if not "homo economicus" – what is the alternative?

If we are going to create economic models to predict the outcome of human behavior given multiple and varied incentives, how do we understand their process of decision making?

Homo Economicus says that they will make rational choices according to their perception of their best interest. This is not a wild economic theory, but the most obvious of common sense, that matches our daily experience of ourselves and others.

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