Economics 2.0: The Natural Step Towards a Self-Regulating, Participatory Market Society
Evol. Inst. Econ. Rev. 10(1): 3–41 (2013)
39 Pages Posted: 22 May 2013 Last revised: 29 Sep 2013
Date Written: May 16, 2013
Despite all our great advances in science, technology and financial innovations, many societies today are struggling with a financial, economic and public spending crisis, over-regulation, and mass unemployment, as well as lack of sustainability and innovation. Can we still rely on conventional economic thinking or do we need a new approach? Is our economic system undergoing a fundamental transformation? Are our theories still doing a good job with just a few exceptions, or do they work only for "good weather" but not for "market storms"? Can we fix existing theories by adapting them a bit, or do we need a fundamentally different approach? These are the kind of questions that will be addressed in this paper.
I argue that, as the complexity of socio-economic systems increases, networked decision-making and bottom-up self-regulation will be more and more important features. It will be explained why, besides the "homo economicus" with strictly self-regarding preferences, natural selection has also created a "homo socialis" with other-regarding preferences. While the "homo economicus" optimizes the own prospects in separation, the decisions of the "homo socialis" are self-determined, but interconnected, a fact that may be characterized by the term "networked minds". Notably, the "homo socialis" manages to earn higher payoffs than the "homo economicus".
I show that the "homo economicus" and the "homo socialis" imply a different kind of dynamics and distinct aggregate outcomes. Therefore, next to the traditional economics for the "homo economicus" ("economics 1.0"), a complementary theory must be developed for the "homo socialis". This economic theory might be called "economics 2.0" or "socionomics". The names are justified, because the Web 2.0 is currently promoting a transition to a new market organization, which benefits from social media platforms and could be characterized as "participatory market society". To thrive, the "homo socialis" requires suitable institutional settings such a particular kinds of reputation systems, which will be sketched in this paper. I also propose a new kind of money, so-called "qualified money", which may overcome some of the problems of our current financial system.
In summary, I discuss the economic literature from a new perspective and argue that this offers the basis for a different theoretical framework. This opens the door for a new economic thinking and a novel research field, which focuses on the effects, implications, and institutional requirements for global-scale network interactions and highly interdependent decisions.
Keywords: homo economicus, homo socialis, self-regulation, reputation systems, qualified money, FuturICT initiative, sustainability, innovation, employment, Web 2.0, social media
JEL Classification: A00, F00, P00, P40, A13, C63, C72, D11, D20, D40, E44, H41, K20, L15, P40
Suggested Citation: Suggested Citation
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By Steve Keen