Today’s Quote of the Day comes from page 18 of the Liberty Fund edition of The Collected Works of James Buchanan: Volume 12: Economic Inquiry and its Logic (emphasis added):
The economist may, within limits, discuss this “choice,” provided he remains within what we have called “the logic of choice” [the individual decision-maker will select that option which stands highest in his ordering preference]. He cannot, however, plug in the Homo economicus introduced in his abstract models of economic behavior and then use this as the basis for constructing specific choice-influencing constraints aimed at welfare improvement. Individuals chose on the basis of their own preference orderings; they may, within limits, behave as the abstract theory of economics postulates. But rarely do they behave strictly as the automations of the analytical models. Yet this is precisely the unrecognized assumption that is implicit in most modern policy discussion.
As Buchanan says, this assumption that people behave as the perfect Homo economicus in the model is implicit, not explicit, in most modern policy discussions. It is from the “scientism” nature of much of modern economics that makes this assumption implicit. The good economist recognizes this assumption is a tool for simplifying a complex world. This assumption, and the models that come from it, give us valuable insights into how the world works. But it is not the be-all and end-all. Using models, and only models, for policy planning, no matter how much mathematics they have in them, will ultimately lead to disappointment.