The Parkland Institute

Blog Entries | January 13, 2012

Homo economicus, meet Homo sapiens

posted by David Thompson

Decades ago, economists put forward a somewhat bizarre account of human motivation and behaviour.  According to what Economics 101 taught, humans are entirely selfish and motivated by greed: Homo economicus. 

Selfish is of course an apt description of business corporations, which have an overriding goal of profit maximization (share value maximization) written into their legal DNA.  As Joel Bakan points out in his book, the corporation has most of the characteristics of psychopaths. 

But only a tiny proportion of people suffer from this ailment.  The vast majority of people are, well... people.  Their motivations are much more complex.  Recent research has refuted the lopsided and naive picture of humanity represented by Homo economicus.  Interestingly, a lot of this research is taking place within the field of economics. 

Behavioural economics uses actual evidence in examining economic decisions and behaviour.  In being evidence-based, behavioural economics differs from naive economics, which made assumptions about human behaviour.  A series of popular books (e.g. Dan Ariely's Predictably Irrational) has begun to move this new and more complete picture of humanity into the mainstream. 

Behavioural economics has delved into many areas.  One of those areas relates to incentives for better work performance.  A key finding?  So-called "performance-based" pay models don't work the way naive economics had implied.  Dan Pink has an interesting and entertaining 20-minute TED Talk on this point (and here is a 10-minute illustrated video).  In a nutshell:

• For simple tasks, money is a good motivator: the more you get, the harder you work on those tasks.
• For tasks that require creativity and the use of cognitive skills, it's more complicated. Performance bonuses seem not to work, and are often counter-productive. 
• The best motivations are intrinsic, not extrinsic. The upshot is:

• You want to pay adequately and fairly to take money "off the table" as a motivational issue (of course "enough money" is a relative thing, not an absolute thing)
• To get the best out of people, you need engagement, which means three things:
  • autonomy - people are self-directed in their work;
  • mastery - people have the opportunity to do things well; and
  • greater purpose - people can do something for more than just themselves.

So, what does this mean for workplaces and public policy?  Well, for starters, CEO and executive performance bonuses are dubious motivators.  Fee-for-service arrangements for doctors may be counterproductive; salaries could be the better route.  Employees should be given scope for excellence and social purpose, rather that pressure for speed and productivity.

If some of these findings seem counter-intuitive, just remember that we've been immersed in the assumptions of naive economics for a long time.  It will take a while to dig out and disabuse ourselves of that baggage. 

The way people actually behave is far more complex than Homo economicus suggests; it's also far more interesting and intelligent.  Homo sapiens is Latin for wise human.  The picture of economic life has evolved; we now understand more.  Homo economicus, meet Homo sapiens.

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