radical Insights.

Weekly Research and Commentary on the Future of Business and Technology.

AI – The Rise of Homo Economicus.

Jan 30, 2024

Sometime during my first weeks of enrolling in my economics master’s at the venerable University of Cologne, I found myself sitting in an auditorium listening to the dean of the economics department. After his opening salvo, telling us that more than 50% of us won’t make it through the program (you just have to love a good motivational speech by a German professor), he went on to tell us that for the next two years, we will study “homo economicus.”

Homo economicus, or “economic man,” is a theoretical concept in economics that portrays humans as consistently rational and narrowly self-interested agents who usually pursue their subjectively-defined ends optimally. I distinctly remember sitting on an uncomfortable wooden bench, which so many of my predecessors have sat on, and shaking my head: Since when are human beings “rational” in their decision-making?

This sobering moment of understanding what we will be studying led me to delve into the fields of psychology and sociology to augment my understanding of economics and human behavior in the growing field of behavioral economics.

Since then, the field has made huge strides, received two Nobel prizes (2002 for Daniel Kahneman and 2017 for Richard Thaler), and, in large part due to popularization through books such as “Influence,” “Nudge,” “Thinking Fast and Slow,” or “The Power of Habit.” And with that, homo economicus went the way of homo neanderthalensis, the Neanderthal man – pushed aside by a superior species, homo sapiens.

And all of this might just change – and homo economicus gets his spot in the limelight.

One of the more recent, exciting, and fairly hyped developments in AI is the advent of smart agents or bots – generative AI systems that can take instructions given in plain English (or whatever language you speak), carry out research, and then execute autonomously on your behalf. The classic example being flight tickets: Instead of you going to Google Flight or Kayak to find the best flights, then clicking through to the airline’s website and purchasing your tickets, an AI bot one (not too distant day) will be able to execute that search query for you, figure out the ideal flight based on your preferences, and finally book it for you.

Bill Gates, at a conference in San Francisco, summarized this as follows: “[…] you’ll never go to a search site again. You’ll never go to a productivity tool again. You’ll never go to Amazon again. Everything will be mediated through your agent.”

And this is where it gets interesting: A bot will (hopefully) make its decisions not based on some irrational thought or feeling but rather by weighing the pros and cons of multiple dimensions – a behavior which is quite possibly as close to homo economicus as it gets. And this bot will operate in a world that is, at least for now, optimized for the irrational, emotional behavior of humans. One where package design might matter more than the nutritional content of your breakfast cereal, one where we buy things because we can’t control the impulse and crave the dopamine hit, and one where whole industries were built to exploit our behavioral economics.

By prioritizing rationality and suitability over marketing flair, AI bots could dramatically change the way products are sold and bought. Are you ready? @Pascal