Abstract: This essay argues that Faust is no homo economicus in part one. He is not the self-interested, future-oriented, rational agent with stable preferences that he becomes in part two. Rather, he represents an error-prone human making risky decisions that are, in fact, gambles. Gretchen also makes a series of increasingly risky bets, but the stakes are very different for her. In Faust I, Goethe demonstrates insight into human behavior that aligns with and illustrates fundamental elements of behavioral economics, which studies how people act in the real world and thus human error. Combining economic and psychological methods, behavioral economics has identified heuristics—mental shortcuts or rules of thumb—and biases that do not conform to the model of the calculating, self-interested homo economicus long championed by economists. The tools of behavioral economics—prospect theory, nudging, and loss aversion—illuminate the all-too-human decisions made by Faust, Gretchen, and others in Faust I. Goethe exhibits an advanced understanding of decision-making that he embeds in the choice architecture of part one.

Keywords: behavioral economics, decision-making, loss aversion, nudging, choice architecture, gambling, homo economicus

Introduction

Homo economicus is a mainstay of economic theory. Economic historians credit John Stuart Mill with introducing the concept without naming it in “On the Definition of Political Economy; and on the Method of Investigation Proper to It” (1836).