Comprehension
Comprehension: The passage below is accompanied by four questions. Based on the passage, choose the best answer for each question. Oftentimes, when economists cross borders, they are less interested in learning from others than in invading their garden plots. Gary Becker, for instance, pioneered the idea of human capital. To do so, he famously tackled topics like crime and domesticity, applying methods honed in the study of markets to domains of nonmarket life. He projected economics outward into new realms: for example, by revealing the extent to which humans calculate marginal utilities when choosing their spouses or stealing from neighbors. At the same time, he did not let other ways of thinking enter his own economic realm: for example, he did not borrow from anthropology or history or let observations of nonmarket economics inform his homo economicus. Becker was a picture of the imperial economist in the heyday of the discipline’s bravura. Times have changed for the once almighty discipline. Economics has been taken to task, within and beyond its ramparts. Some economists have reached out, imported, borrowed, and collaborated—been less imperial, more open. Consider Thomas Piketty and his outreach to historians. The booming field of behavioral economics—the fusion of economics and social psychology—is another case. Having spawned active subfields, like judgment, decision making and a turn to experimentation, the field aims to go beyond the caricature of Rational Man to explain how humans make decisions…. It is important to underscore how this flips the way we think about economics. For generations, economists have presumed that people have interests—“preferences,” in the neoclassical argot—that get revealed in the course of peoples’ choices. Interests come before actions and determine them. If you are hungry, you buy lunch; if you are cold, you get a sweater. If you only have so much money and can’t afford to deal with both your growling stomach and your shivering, which need you choose to meet using your scarce savings reveals your preference. Psychologists take one look at this simple formulation and shake their heads. Increasingly, even some mainstream economists have to admit that homo economicus doesn’t always behave like the textbook maximizer; irrational behavior can’t simply be waved away as extra economic expressions of passions over interests, and thus the domain of other disciplines…. This is one place where the humanist can help the economist. If narrative economics is going to help us understand how rivals duke it out, who wins and who loses, we are going to need much more than lessons from epidemiological studies of viruses or intracranial stimuli. Above all, we need politics and institutions. Shiller [the Nobel prize winning economist] connects perceptions of narratives to changes in behavior and thence to social outcomes. He completes a circle that was key to behavioral economics and brings in storytelling to make sense of how perceptions get framed. This cycle (perception to behavior to society) was once mediated or dominated by institutions: the political parties, lobby groups, and media organizations that played a vital role in legitimating, representing, and excluding interests. Yet institutions have been stripped from Shiller’s account, to reveal a bare dynamic of emotions and economics, without the intermediating place of politics.
Question: 1

We can infer from the passage that the term '‘homo economicus” refers to someone who

Updated On: Jul 21, 2025
  • believes in borrowing and collaborating with other disciplines in their work.
  • maximises their opportunities based on nonmarket choices.
  • makes rational decisions based on their own preferences.
  • is not influenced by the preferences and choices of others.
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The Correct Option is C

Solution and Explanation

The term "homo economicus" traditionally refers to a theoretical individual or agent who makes rational decisions based on personal preferences and utility maximization. In the provided passage, the concept of "homo economicus" is described in the context of Gary Becker's approach to economics, emphasizing rational decision-making and marginal utility calculations in nonmarket situations, without borrowing methodologies from other disciplines. The passage contrasts traditional economic models, which presume rational behavior, with newer approaches like behavioral economics that acknowledge deviations from rationality due to other factors such as emotion.

Given the context of the passage and the concept of "homo economicus," the correct answer is that "homo economicus" refers to someone who makes rational decisions based on their own preferences.

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Question: 2

“Times have changed for the once almighty discipline.” We can infer from this statement and the associated paragraph that the author is being

Updated On: Jul 21, 2025
  • sarcastic about how economists, who earlier shunned other disciplines, are now beginning to incorporate them in their analyses.
  • critical of economists’ openly borrowing and collaborating across disciplines to explain how humans make decisions.
  • disparaging of economists’ inability to precisely predict market behaviour, and are now borrowing from other disciplines to remedy this.
  • judgemental about the ability of economic tools to accurately manage crises leading to the downfall of this lofty science.
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The Correct Option is A

Solution and Explanation

The statement "Times have changed for the once almighty discipline" suggests a shift in the status and approach of economics as a discipline. To understand the author's tone, let's examine the provided comprehension. Historically, economists, represented by figures like Gary Becker, extended economics into non-market areas without integrating insights from other disciplines. However, the passage discusses recent changes, highlighting a collaborative turn in economics where economists are now incorporating insights from disciplines like history and psychology to explain human behavior more comprehensively.
The author references the emergence of behavioral economics as an example of this shift: economists now recognize that traditional economic models based on rational decision-making do not capture all human behavior. They integrate insights from fields that consider emotional and psychological factors, reflecting a more open and interdisciplinary approach.
The statement about "times have changed" implies surprise or irony about economists' newfound willingness to borrow from other disciplines, a contrast to their previous "imperial" stance of extending economics into other fields without reciprocity.
Therefore, the author's tone is best captured by the option: "sarcastic about how economists, who earlier shunned other disciplines, are now beginning to incorporate them in their analyses."
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Question: 3

In the first paragraph the author is making the point that economists like Becker

Updated On: Jul 21, 2025
  • benefitted from the application of their principles and concepts to non-economic phenomena.
  • used economics to analyse non-market behaviour, without incorporating perspectives from other areas of inquiry.
  • tended to guard their discipline from poaching by academics from other subject areas.
  • had begun to borrow concepts from other disciplines but were averse to the latter applying economic principles.
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The Correct Option is B

Solution and Explanation

In the first paragraph of the comprehension passage, the author describes the attitude of economists like Gary Becker towards applying economic principles. The author suggests that Becker, and similar economists of his time, would apply economic methods to non-economic phenomena such as crime and domesticity. They extended these methods typically used in market analysis to non-market life, such as how individuals calculate marginal utilities in personal choices. However, Becker did not incorporate insights or perspectives from other disciplines like anthropology or history into his economic analyses. This indicates a one-sided application of economics without integrating ideas from other areas of inquiry.
Therefore, the correct option is: used economics to analyse non-market behaviour, without incorporating perspectives from other areas of inquiry.
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Question: 4

The author critiques Schiller’s approach to behavioural economics for

Updated On: Jul 21, 2025
  • linking emotions and rational behaviour without considering the mediation of social institutions.
  • denigrating the role of institutions while creating a link between behavioural economics and perceptions.
  • relying excessively on storytelling as the main influence on the formation of perceptions.
  • ignoring the marginal role that media and politics play in influencing people’s behaviour.
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The Correct Option is A

Solution and Explanation

The question requires identifying the critique against Schiller’s approach to behavioral economics as described in the given passage. The correct answer is: linking emotions and rational behavior without considering the mediation of social institutions.

Let's break down the reasoning: 

1. The passage discusses how behavioral economics is a fusion of economics and social psychology, focusing on how humans make decisions beyond the classic Rational Man model.

2. Schiller's approach involves connecting perceptions and narratives to changes in behavior, leading to social outcomes, incorporating storytelling as a tool for understanding how perceptions are framed.

3. The key critique mentioned in the passage is Schiller's neglect of political and institutional factors. It states: "Yet institutions have been stripped from Schiller’s account, to reveal a bare dynamic of emotions and economics, without the intermediating place of politics."

4. This critique highlights that Schiller’s model directly links emotions and behavior without acknowledging the intermediary role played by political institutions and social structures, which have traditionally mediated this relationship.

Therefore, the answer highlighting this flaw is: linking emotions and rational behavior without considering the mediation of social institutions.

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