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On the weighting of homo economicus and homo virtus in human behaviour

Economics

On the weighting of homo economicus and homo virtus in human behaviour

M. Parada-contzen and J. R. Parada-daza

Discover how economic and non-economic factors influence wellbeing in our latest study by Marcela Parada-Contzen and José Rigoberto Parada-Daza. This research reveals that while emotional wellbeing and human virtues play a role, traditional economic motivations dominate the landscape of wellbeing measurements across countries.

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Playback language: English
Introduction
Traditional economic analyses largely focus on *homo economicus*, a rational, maximizing individual. This model overlooks the complexity of human behavior, including ethical and emotional considerations, which this paper refers to as *homo virtus*. The *homo virtus* perspective, rooted in ancient Greek philosophy (Aristotle's emphasis on virtue for satisfaction), acknowledges that human actions are motivated by non-economic factors like morality, justice, and integrity. Economic models typically link wellbeing to wealth measures (income, consumption, national product), but this overlooks evidence showing a lack of positive correlation between national product growth and life satisfaction, or income inequality and global wellbeing. Existing research suggests that *homo economicus* doesn't fully capture individual behavior and that focusing solely on economic wellbeing is insufficient, especially in wealthier societies where social factors become increasingly important. This paper aims to quantitatively measure the influence of economic and non-economic perspectives on wellbeing using a utility model that incorporates both *homo economicus* and *homo virtus*. The study tests three hypotheses: (a) the model can quantitatively assess economic and non-economic contributions, (b) the coefficients for economic and non-economic factors are statistically significant, and (c) the emotional basis of wellbeing varies across countries.
Literature Review
The mathematical formalization of *homo economicus* emerged in the 1940s, often represented by utility functions linking wealth/consumption to satisfaction (logarithmic, quadratic, exponential). Utility theory, based on Von Neumann and Morgenstern axioms, has seen further development with risk aversion measures. However, critiques like Etzioni's highlight the limitations of mono-utility functions, arguing that pleasure and morality are irreducible sources of utility. The *homo virtus* concept, rooted in Aristotle's virtue ethics (habituation hypothesis), emphasizes moral development through practice. Modern extensions incorporate self-realization theory (Maslow's hierarchy of needs) and concepts like moral self-awareness (Friedland and Cole), which integrate social welfare perspectives and consider moral motivations (pride, shame, guilt). The 'moral crowding-out' literature suggests that market mechanisms, designed for *homo economicus*, can displace non-market, *homo virtus* behaviors. This paper builds on Parada-Daza's 'emotional wellbeing (WB) function,' which mathematically incorporates ethical and normative restrictions, acknowledging that individuals may sacrifice maximum economic utility for other reasons. This function is an upper envelope of other utility functions with a sinusoidal component representing non-economic factors.
Methodology
The study uses data from three sources: the Well-Being Index (BCG's Sustainable Economic Development Assessment, 2008-2018), the Index of Economic Well-Being (CSLS, 1980-2014), and the Happiness Score (World Happiness Report, 2005-2018). The data is analyzed at the country level, using these indices as proxies for individual satisfaction. The empirical model, based on Parada-Daza (2004), is a utility function: WBᵢ = a₀ + a₁Ln(wᵢₜ) + a₂Sin(πwᵢₜ), where WBᵢ is emotional wellbeing, wᵢₜ is relative wealth, a₀ represents baseline satisfaction, a₁ is the weight of *homo economicus*, and a₂ (1-a₁) is the weight of *homo virtus*. Linear regressions are performed globally, for OECD countries, European countries, and developing countries to estimate a₁ and a₂. The upper and lower envelope functions of the wellbeing function are also calculated to represent maximum and minimum levels of satisfaction.
Key Findings
Across all three wellbeing measures, the results consistently show that the *homo virtus* dimension of behavior has an average weight of approximately 11%, while the *homo economicus* perspective accounts for about 89%. Richer countries (Europe, OECD) tend to place a significantly higher weight on *homo economicus* (often above 90%) compared to developing countries and Latin American countries (often closer to 80%). The maximum level of emotional satisfaction (representing no economic sacrifice) is substantially higher for European and OECD countries than for developing countries. For example, using the Well-Being Index, the maximum satisfaction functions are estimated for all countries as 0.748Ln(w)+1.823, and for developing countries as 0.574Ln(w) +1.624. The analysis also revealed that, unexpectedly, Africa exhibited a pattern deviating from the general trend, showing less significant influence from the economic perspective in determining wellbeing. The Index of Economic Well-Being (IEWB) data for 14 OECD countries indicated that once country fixed effects are controlled, the contribution of the *homo virtus* perspective diminished considerably. The World Happiness Score data confirmed similar patterns, with richer countries showing a markedly higher weight on *homo economicus*. The coefficients are highly significant in all models
Discussion
The findings support the hypotheses, indicating that both economic and non-economic factors significantly influence wellbeing, but the economic dimension is dominant. The results align with the 'moral crowding-out' literature, suggesting that prevalent market mechanisms in developed countries displace intrinsic moral motivations. Less developed countries, with weaker market incentives, might show a stronger influence of moral motivations. The 'comparison income' theory could also explain the results, with individuals in richer countries comparing themselves to others within those higher-income groups, further emphasizing economic factors. The observed differences across regions might also relate to varying levels of self-realization, with differing priorities on economic versus moral factors in different societal contexts. The higher weight of *homo economicus* in rapidly growing economies (like some Arabic countries) supports the moral crowding-out theory and comparison income hypotheses, suggesting a potential shift in weighting depending on the economic growth stage. The study adds empirical evidence on moral crowding-out in various settings.
Conclusion
This study demonstrates that while *homo economicus* significantly impacts wellbeing, *homo virtus* also plays a role. Richer countries show a greater emphasis on economic factors. Future research should investigate the underlying causes of these regional variations (economic, moral, cultural factors), and refine the measurement of wellbeing to better disentangle different dimensions of satisfaction and self-realization. Using more nuanced wellbeing measures could provide a more granular understanding of the interplay between economic and non-economic motivations in shaping individual and societal wellbeing.
Limitations
The three wellbeing measures used are conceptually distinct, capturing different aspects of satisfaction. They incorporate various dimensions but don't explicitly rank the importance of virtuous self-realization versus other factors. The country-level analysis is a proxy for individual-level behavior, and the lack of individual-level data limits a deeper understanding of the interplay between individual characteristics and wellbeing. Future research could use surveys or other individual-level data to improve the precision of these findings.
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