Is Homo Economicus a Psychopath?

It's not a perfect model because people's preferences are not necessarily totally ordered, and people are not always consistent, and preferences change in interesting but sometimes inconsistent (and often predictable) ways. But it's pretty good.

I think it's a great way to think about things because it makes no judgements about what your actual goals are. After all, people have different preferences and interests, and that's fine. More importantly, this also means you could reuse the same ideas perfectly happily for corporations, organizations, societies or event AIs and still draw interesting conclusions. It also lets us create systems that can successfully cater to agents with wildly different interests and get them all to cooperate willingly—that's one of the most important features of our market system and capitalism.

The prisoner's dilemma is an interesting game because it is extreme: people are able to lower the total welfare while raising their own.

But classical economics asserts that these situations arise only when there are externalities or market frictions, and only in proportion to how large these are (there are also issues of wealth distribution, but this could be thought of as a friction to perfect taxation).

If there were no market frictions, and people could be taxed according to their innate ability to earn money, then it wouldn't matter whether people aimed to maximize their own utility, or the sum of everyone's utility: they would engage in exactly the same actions.

Altruism vs selfishness only becomes an issue when there are externalities or frictions. E.g. do I choose to pollute a stream, even though I know I won't be punished. Or do I choose to work less than I would otherwise, because some of my income is taxed (if people didn't work less for this reason, we could have a tax system with much more redistribution).

So neoclassical theory isn't nearly so tied to the idea of selfishness as people think. One thing it does do, is make very clear that people are selfish. I could buy a coffee every day, or make a donation that would (on average) save one life in Africa. And yet I chose to buy the coffee anyway. As a believer in classical economics, I have to conclude that I am that selfish.

There is no way to avoid the necessity of making a value decision. Even if one chooses the "will of god", they still are making an arbitrary choice. (Never mind at this stage in history the vast smorgasbord of "divine wills" to choose from...).

It all comes down to human valuation. Create your own or follow someone else's. Inevitably.

But you must admit, there are no shortage of psychopathic uberman talking about love and goodness to further their own ends....

I think that's often an unwarranted step to take - I'm MUCH more comfortable with the "act as if" formulation than I would be asserting that people actually are even approximately "well-informed" in most contexts. (Or "rational", for that matter.)

To illustrate the problem, consider an industry which is at least somewhat competitive. There is a wide range of available business strategies. Some of these strategies are dumb, but it might not be obvious which. Companies still have to make decisions, so they pick strategies. They might copy a market leader, flip a coin, hire physicists, hire astrologers...but somehow they PICK A BUSINESS STRATEGY.

After a few years, the businesses that happened to pick a particularly DUMB strategy go bankrupt; their businesses collapse and get bought; resources get reallocated to better use.

After many rounds of this game, a LOT of fragile, unlucky, or dumb business strategies have failed. A few remain that seem to work pretty well, and every company still going is trying to follow one of the more-successful strategies.

We now have some idea which strategies work but don't necessarily know WHY. There is institutional wisdom ("we've always done it THIS way") in the winners that they themselves might not understand.

In short, the economic environment (given some simple premises) tends to select for being efficient, regardless of whether people understand why what they are doing is efficient. Figuring it all out does probably happen eventually, but the order of cause and effect might be reversed - you try out the strategy, see that it works, scale it up and perhaps THEN figure out why it works. That's why I can describe companies as acting "as if they were rationally well-informed" even though I know that the individuals involved not only do indeed have a bunch of random "behavioralist" biases (the usual criticism) but in many cases they may actually lack conscious deliberate knowledge of why they do what they do.