Addressing an Objection to the Representative Economic Agent - dummies

Addressing an Objection to the Representative Economic Agent

By Lynne Pepall, Peter Antonioni, Manzur Rashid

A criticism sometimes leveled at the economists’ view of a representative “person” is that such a construction could describe a psychopath, in the sense that representative consumers follow their own interests and make a rational choice between options that allows them to maximize their own utility.

Microeconomists aren’t psychiatrists and so can’t give a medical view on whether this description satisfies the conditions for diagnosing a psychopath, but there are a couple of flaws in this view of what economists think of as a representative agent:

  • This criticism is rooted in a framing problem. Suppose a person says he prefers a treatment with a 70 percent success rate over one with a 30 percent rate of failure. To an economist, this is inconsistent or illogical because a success rate of 70 percent is the same as a 30 percent rate of failure. But framing the example of the choice in two different ways tends to affect how the choice is perceived.

    Advertisers understand this aspect of human behavior. Political marketers are experts in framing — saying that an incumbent congressman “was absent 16 times to vote on matters of national importance” sounds very different from saying that “the congressman had a 99% voting record.” Both statements are true but framed differently.

  • Economists make no assertions about people’s motivations beyond that they like doing certain things. Some people are interested in which charitable activities they should engage in — others are choosing whether to buy a Ferrari or a Lamborghini. Some people are more selfish than others. But an economist does not look at these choices from a moral perspective. Economists are interested in the process of choosing and not in the reasons why a person chooses one thing or another.