Section 2 – Homo economicus Versus Homo sapiens

We now turn to a discussion of the explicit axioms that distinguish Homo economicus, and describe a central theory (known as expected utility theory) that evolved from these axioms in the mid-20th century. The first two axioms are known as the Principal Rationality Axioms, and the second set of five axioms are known as Additional Rationality Axioms.^[1] While we assume that Homo economicus would never violate any of them, the extent to which Homo sapiens violate these axioms has been a foundational question in behavioral economics. In this section, we take a deep dive into the comparison between Homo economicus and Homo sapiens.

We begin in Chapter 3 with an introduction to the axioms and principles that distinguish the rational choice behavior of Homo economicus. We then examine the implications of these axioms and principles with respect to how economists have traditionally depicted Homo economicus’ preferences, specifically their risk preferences. In Chapter 4, we explore how behavioral economists have adjusted the rational-choice model of Homo economicus to account for the reality of Homo sapiens’ choice behavior. We introduce two new theories—Prospect and Regret Theories—that provide the two main frameworks within which these adjustments are characterized. In Chapter 5, we investigate a variety of laboratory experiments that have measured the extent to which Homo sapiens deviate from the rationality axioms of Chapter 3. Chapter 6 presents additional laboratory experiments designed to test the implications of the theories advanced in Chapter 4.