That is the primary in a sequence of movies on the assumptions underpinning neoclassical economics, which shall be adopted by one other sequence on neoliberal economics. In future, a listing of all movies within the sequence shall be added on the finish of every publish.

Neoclassical economics is constructed on myths — and none is extra absurd than the concept of homo Economicus: the peerlessly rational, totally knowledgeable, self-interested human who supposedly drives all financial decision-making.

However does such an individual exist? In fact not. We’re emotional, social, biased, and unsure beings. We act from compassion, behavior, and worry as a lot as calculation. And but, this fantasy of rationality nonetheless shapes coverage, markets, and even how governments take into consideration human behaviour.

On this video, I dismantle this delusion, which is on the coronary heart of mainstream economics, displaying how its assumptions about utility, good information, and revenue maximisation bear no resemblance to actuality and why that issues for all the pieces from monetary crises to on a regular basis life.

If we’re to construct an economics that serves individuals, not concept, we should bury homo Economicus as soon as and for all and settle for that uncertainty, cooperation, and care outline actual human behaviour.

That is the transcript:

The world of neoclassical economics is constructed on myths, all of them assumptions that supposedly make   that system of thought work, however that are in reality whole and utter garbage.

And none is extra vital than the concept of ‘  homo economicus’. That is the supposedly rational, completely knowledgeable, utterly self-interested one that lives in our society and drives all financial motion.

Does ‘homo economicus’ exist? Are you that individual? Are you all the time rational? At all times utterly knowledgeable about each resolution you need to make? And all the time self-interested to the exclusion of all others?  If not, then neoclassical economics has failed since you’ve not complied with the norm that it thinks that people actually adjust to.

The declare by neoclassical economics is that you just search to maximise your private utility. However no one is aware of what utility is.  Financial utility is the quantity, supposedly, of satisfaction, happiness, or profit that you just obtain from consuming or service. However there is no such thing as a means for sure of measuring this as a result of it makes fairly clear that this isn’t about cash. However the device which all of economics makes use of to approximate utility is cash, creating a complete battle in itself.

And this concept of  utility is completely subjective and summary, and but it’s what supposedly makes neoclassical economics work  as a result of we, apparently, attempt to maximise our happiness, simply as neoclassical economics supposes that companies attempt to maximise their revenue, though there is no such thing as a accepted definition of what revenue is, and even when there was,  maximising revenue requires sure information of the longer term, and none of us are possessed of it.

Nonetheless, neoclassical economics overcomes that drawback as a result of  it assumes that information of the longer term is ideal and free, because of which all choices will be, supposedly, coldly calculated to maximise our well-being.

That is the full and utter gibberish nonsense on which neoclassical economics is constructed.

Homo-economicus is actual, they declare, though you’ve got by no means met anyone who’s vaguely just like the individual so described.

In actuality, in fact,  we people would not have good information.

We’re pushed by feelings, bias and behavior.

We aren’t rational.

We’re caring, compassionate and emotional.

And we most undoubtedly have no idea the longer term. Nor will we all the time even know what’s finest for our personal well-being, and but we nonetheless in some way make choices largely on the premise of heuristics and guidelines of thumb, as a result of more often than not we merely have not acquired the chance to take a seat down and do the chilly arduous calculations to work out what would maximise our well-being, even when we knew what that appeared like.

So the consequence is that removed from us being particular person, atomised, separate entities, all of us making our personal rational choices,  in observe, herd behaviour drives plenty of what we do, and we see the implications throughout us.  Booms and crashes are one of many apparent penalties which have a selected value.

So why will we fake that homo-economicus is current on the planet?

Why will we assume motives that do not exist?

Why does neoclassical economics ignore the dangers that bubbles and instability arising from human and pc behaviour create?

Economics merely does all this to make its personal slightly small, petty world work. And within the meantime, it really completely misreads how actual individuals act and stay.

The consequence is throughout us. The foundations of neoclassical economics, which have gone on to tell neoliberal economics, lead to a unbroken disaster as a result of the coverage descriptions which are created by this mind-set don’t match with actuality.

If  you advise on a world that does not exist, and inform the world that does exist to attempt to develop into a world that’s not solely not in existence, however which may by no means exist, then you’re sure to ship a prescription for failure. And that is what we have now.

Homo-economicus, this supposedly rational individual, who’s on the epicentre of financial considering – this totally customary single individual, from whom no one ever deviates in behaviour – needs to be put down. Painlessly, however nonetheless, put down. And we should presume they by no means existed as a result of, in fact, they have not.

If the world is to develop into a very sturdy, functioning place during which economics can play a useful position by embracing the uncertainty of life itself, then we have now to desert this assumption, which underpins neoclassical economics.

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