Tag Archives: Homo Economicus

Can Prospect Theory Explain Why Reframing Your Expectation can Increase Your Wealth

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In most business seminars people are told to change their expectation. It’s in most success seminars.

Prospect theory says that if you change your expectation you change your utility function, your preference, your action, and hence, of course, your fortune.

http://en.wikipedia.org/wiki/Prospect_theory

I wonder if that success seminars recipe can be explained by prospect theory.

I do not think prospect theory is a real alternative outside homo economicus. I would imagine that if you have a factory and take a gamble that will assign you some random number of employees that you’ll be forced to higher. Obviously your utility function will be S shapes like the utility function in http://en.wikipedia.org/wiki/Prospect_theory . In fact, I would think it’ll be somewhat sinusoidal.

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What’s the difference between psychopath, homo economicus, and typical humans?

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Why do we sign contracts? Because we know, normal people, would just run away with money and goods if he knows he can get away with it. But that’s precisely what psychopaths would do.

So what’s the difference?

If they both do the same thing under the same choice, then they must have the same utility function. What are the main difference between a psychopath’s utility function and most humans’ utility function?

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Simplified Homo Economicus Alternatives

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I shorten this to remove politically incorrect part. The complete version is in http://freemarketforever.com/2012/03/22/alternative-to-homo-economicus-2/

Homo Economicus has a few problems.

1. It’s too broad. All it says is you have a (set of) utility function(s) that’s equivalent under any linear affine transformation with positive slope. It doesn’t say what’s humans’ typical utility function is. It’s definition of selfish is intuitively misleading. Most utility function that people come up with is simply false.
2. It works in as if basis.Humans are not truly rational. They just behave as if they do. Believing that humans are homo economic us is then like believing that the sun revolves around the earth.
3. It’s not true. Most humans have inconsistent goal or simply don’t have any consistent utility function.

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