By Kelvin Tai - Economics and Management Student @ Harris Manchester College, Oxford
To those who are unfamiliar with economics, it may seem an antiquated theoretical subject that is largely based on an unrealistic model of humanity – the homo economicus – a selfish man grasping for his own self-interest and self-interest alone, with an unlimited capacity for rational decisions. This is commonly attributed to Adam Smith’s description of the Invisible Hand, so claimed because the functioning of the free market occurs without central coordination, but through the pursuit of self-interest.
“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own self-interest.” – Adam Smith
The Theory of Moral Sentiment is a lesser known work of Adam Smith, where he explores moral actions as a result of social psychology. He is not a proponent of humanity being a cold-hearted species but instead acknowledges that people are often altruistic.
“How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it.” – also Adam Smith
Economics often assumes that agents seek to maximise their utility. However, utility does not actually relate strictly to the consumption of goods or the increase of self-interest. The utility function can be expanded to encompass the interests of others; utility is but a tool to gauge the behaviours of economic agents and predict their actions based on consistent past behaviour. Economic agents have been shown to di