Homo economicus

Pioneered by Adam Smith, one of the founders of capitalism, the idea of homo-economicus is used as a base to construct theories on consumption and investment. In his famous book The Wealth of Nations, Adam Smith emphasizes the importance of self interest in human behaviors and describes the self-interest as the key driver of social prosperity. An economic agent has been constructed as a representative one which typifies the economic behavior of a typical person in the society and it is assumed that this agent systematically behaves rationally when deciding on any issue, especially the economic issues. If we define rationality, from the economics standpoint, as an act that aims for the maximum possible degree of acquirements with given limited resources, this constructed agent will be rational by behaving in favor of his/her own self-interest, hence he/she will always be optimizing.

Are we really rational?

In fact, the core belief in the idea of homo-economicus that homo-sapiens, the wise man, acts selfishly is a realistic assumption as self-interest is an important part of the innate human nature and an important intrinsic motive. We always want the best for ourselves and this motive is not exactly greed, but an intrinsic motivation to behave on one’s interest. But, it is also true that not everyone is rational in the society and not all behaviors are considered rational in an economic sense. To test whether the individuals make rational choices or not, Nobel Laureate Daniel Kahneman and Amos Tversky conducted numerous experiments to test the human rationality and they reached this conclusion that human behaviors are not as rational as predicted by the homo-economicus assumption, instead they found that depending on how the question is framed or how things are measured people can make different choices. Also, they observed that not all behaviors are utility maximizing, sometimes people act altruistically, and sometimes people have the tendency to stay in the status quo. An interesting result of their experiment is that, when people make decisions, they emotionally value losses twice as much as they value an equivalent gain. In an experiment, they ask the subjects the following question:

Would you accept this gamble?
– 50% chance to win $150
– 50% chance to lose $100

They realized that, even though the expected value of gain in the above gamble (50% x $150= $75) is higher than the expected value of loss (50% x $100= $50), there are fewer takers of the gamble. Instead of showing their other experiment results, we can easily look at some of the marketing tricks to have an idea about the irrational choices we make in our daily life.
In a marketing strategy called Decoy marketing, marketers observe a boost in their sales of an expensive offer when they offer a similar item that is inferior in quality but about the same price of the expensive item. In his book Predictably Irrational Don Areily conducts an experiment using magazine subscription offers where subjects were offered two alternative subscription choices to The Economist magazine, one print only subscription (the inferior option which serves to make the combined offer look like a better value) and one internet and print subscription and they observe huge jump in sales due to the decoying effect.

In another experiment in Predictably Irrational, the author shows that people would walk 15 minutes to save $7 on an $18 item but wouldn’t take the same 15-minute trip to save the same amount on a $455 item. In fact, it is the same amount of savings, and a rational person is expected to behave consistently at each case.

The current financial turmoil is a typical example for how people can make irrational decisions. Currently, the world is experiencing a catastrophic financial and economic meltdown started at the subprime mortgage markets in United States and spread out to other financial markets. Some people claim that the irrational behavior of sophisticated investors was the root cause of the recent meltdown. To get a better understanding of the issue, we need to look at the balance of greed and fear in the investors’ behavior. While greed leads to overconfidence in the economy and excessive risk taking, the fear in the market leads to inactivity in the market and excessive aversion to risk. When investors make a decision about whether buying a stock, bond or any sophisticated security, they are expected to evaluate the expected reward versus the risk of possible expected loss. As predicted in Kahneman and Tversky study, the wisdom in the Wall Street is that “Fear always trumps greed.” Neuroscientists describe the situation when greed dominates the fear as a “moral meltdown,” and this is the situation where human brain loses control of reward and loss comparison and completely ignores risks. Take the trading in collateralized debt obligations (CDOs) which was perceived as one of major problems that leads to the recent financial crises. Since the security was rated excellent by the rating agencies and all losses were insured by AIG insurance company, the investors observed too much reward opportunities while no weight was given to the risk of a collapse in the market. That is the point when greed dominates fear in the market and fear fails to balance greed in the normal investor’s brain. In the aftermath of the financial collapse, what we see right now is just the opposite of what was the case in the buildup of the financial bubble. Now, both investors and bankers are in a mode of excessive fear where negative news significantly decrease the stock prices and instead of providing credit to the markets, investors sit on a huge pile of cash.

If the excessive greed and overconfidence in the economy results in catastrophic events, should we ask investors to be less greedy? According to the Adam Smith, all humans have sympathy for the rich and famous. We can even find this in Holy Scriptures as well. There is always a sympathy for, and envy of, the rich. Hence, asking people to act against their innate nature may not be a wise decision but we should also keep in mind that this inherent human tendency can lead to moral corruption in the society. What we need is the balance of fear and greed in our behaviors and if one dominates the other, there will be misery for the whole.

Devrim Bulut holds a PhD degree in economics. Having taught at several universities in the United States for the last 5 years, he conducts research on market irrationality.

The teacher-student relationship, or rapport, is the most important factor contributing to effective teaching. How a teacher portrays him/herself or is perceived by the students, the label he/she is given (bad or good teacher) determine the quality of the teaching-learning process.

Numerous studies, a great deal of research, books, and articles all shed light on this topic. Teachers are presented with many suggestions and ideas on how to become a good teacher. On the other hand, it seems that teachers are so bombarded with ideas that they can hardly digest and utilize them in their daily lives.

I would like to take a different approach and highlight an often overlooked corner of this field: How to become a bad teacher.

The principles of teacher-student relationships

Establish friendships with your students, but do not stop there: act like a child. Worry about what to teach rather than how to facilitate the learning process. Assisting one student at a time is good enough. Others can wait. Don’t worry about trying to assist more than one student with group activities. Be presumptuous towards your students. You have years of experience, you can decipher a student in a few minutes.

It is none of your business if the students develop good relations with each other. Do not bother to adopt a leadership role for this purpose. Some teachers try to get the popular students and the not so popular ones together, helping them to respect one another. These are efforts in vain. With your strong presence everybody will behave and that’s good enough.

Students are too young to develop a sense of responsibility anyway. They cannot be taught how to resolve their own problems, make their own decisions and self-criticisms. You must be there to enforce discipline.

Expected teacher behavior

Assign homework as a way of punishment and threaten your students with grades. Adopt one teaching method, preferably one in which you talk and they listen. If it has worked for so many generations, it ought to work for you.

Do not use encouragement or praise. Do not make any jokes. Do not check the student’s work or monitor progress. Let only the high achievers talk in class discussions. You do not have time to waste listening to poor achievers. They probably have nothing to contribute to the discussion anyway.

Do not tell the students what the expected behavior is. Do not provide a suitable environment in which expected behavior can flourish. Let your own behavior be inconsistent with that of your colleagues. When responding to unacceptable behavior or mistakes use negative criticism. Criticize your students instead of their actions. Be easily affected and distracted by negative comments. Discipline your students using only reprimands and punishment. Do not give time for your students to correct themselves.

Do not have a good lesson plan and let the kids be without a task from time to time. Include topics which you have not previously covered in your assignments. Be a book-oriented teacher. Go into your classroom, deliver your lesson, and leave. Remain distant from students. Do not position yourself in such a way that all the students in the room can see you. Turn your back to your class frequently. That way they will learn to value their time with you.

Do not take into consideration physiological and social development phases or the academic levels of your students. Do not cater for the needs of students with different learning paces. Do not let the students enjoy their achievements.

Focus on undesirable behavior rather than desirable behavior. Address some of your students with their first names while calling others “boy” or “girl.” Do not worry about fairness in awarding or punishing your students. Do not speak clearly. Use slang words.

Handle aggressively even minor discipline problems. Do not ignore anything however small it might be. Never laugh with your students and always keep in mind that you may lose control of the class if you do so. The students are expected to be obedient at all times without questioning anything. Tell students off in front of others if you need to. Never forget that discipline is a major problem; this has been suggested by so many other teachers. Ignore the fact that sometimes students may violate the rules because of your attitude. Do not let the students know that bad behavior is actually showing disrespect to themselves.

Teachers must be mean in order to discipline the students. Punish the whole class if you are not able to find the student who caused the discipline problem. Keep in mind that punishment is easier than prevention. Do not inform the administration, even if the students make it impossible for you to conduct the class. Keep it to yourself as this will protect your reputation.

Conclusion

Resist the temptation to listen to the suggestions of educators from around the world, take the easier path and become a bad teacher. Believe me it is very easy.