I think it's safe to say a lot of characters in fiction are based on real people, in one shape or another. Hemingway often wrote about characters who he knew in real life, and is quoted saying so. The characters were real, what happened to them was fiction. Some authors include real people, and also create fictional ones, too, as did Hemingway, Bradbury, Vonnegut, Fitzgerald and tons of others. The story is typically what is fiction, though some of these authors also wrote about real events in their life, and either added a slightly fictional twist, or a creative interpretation. I think the answer really boils down to Bradbury's opinion on writing, and I'll paraphrase: Write how you want to, about what you want, just make sure you're having fun while doing it, for if you aren't having fun and being yourself, there is no zest or gusto, and zest and gusto are the two things that make the writer and his words.
Developing a charter based on a strong resemblance to someone you know, or someone close, will usually need some serious editing later on. As the character grows with the story, circumstances and reactions begin to change from your 'pal's' reaction, to the character's reaction. I think it's only natural that the two (story and character) grow together. After you trim the fat you'll probably find that the character you started out with has 'left the building'.
Wow...there is a lot of deep opinions on this topic. Very interesting. Everything is going to have pros and cons. I believe I heard someone say that the author of Harry Potter based the characters off of people. I do not know if this is correct or not but that's what I heard.
THis is arguably the best way to go for having characters based on yourself. I've done this so many times, I don't even know where to start. All the MCs in my main projects - both males and females - are based on me. Oftentimes, they're inspired by certain aspects of my personality, or certain aspects of my life experiences. From there, however, as the story grows and develops, so too do the characters. And soon enough, they become their own unique people. In my case, they are similar to me at times, but similar doesn't mean they are me (and definitely not some perfect wish-fulfillment version of me!) - it's more like tangerines and oranges, similar but not really the same, if that makes any sense. Build off of certain aspects of yourself, and then watch as the character naturally changes into their own being (sometimes they need gentle prodding - but not too much).
I usually base my MCs personality on mine. For example in a short story I've written my MC is rather emotional and struggles with the desire for control like me. I even went as far as giving her blonde hair like me and naming her Ann after my middle name. In a novel I plan on writing my MC starts out like me, timid, afraid to speak her mind, not very strong, but eventually over time becomes the person I believe I am deep inside, strong, not afraid to speak her mind, and not afraid to fight for what she believes in. Is it a bad thing to base your MCs on yourself.
I hear people all the time that if you been thru something and you write about it. The writing will be better. So therefore you write aspects in a way or another of yourself.
Some my characters are based on stereotypes this is only because I plan to blast these bias apart, in my novel (for children) showing how unjust it is to 'judge a book by its cover' and that everyone one is far more than the sum of their parts; the fat man is not lazy, the popular girl has a unconventional interest, the village idiot is much more than he appears etc. Even though my characters are cliched stereotypes, some of them are loosely based on real people I know or I have worked with, I find I need a starting block, in with to grow my characters until they blossom into the person they're meant to be. I see nothing wrong with basing fictional characters on real people as long as they're not a carbon copy of the real person;using their real name, where they live, real life experiences, sounds like a law suit to me.
I think it is just easy to make up your own character then having it based on a real person. You would have to do a lot of research to make your character sound similar to the real person. I usually use other fictional characters as referrence for my characters, but most of the time I just come up with basic stock values for them. And then build them off from that.
In my current book, I am basing all of my characters off of people that I know or that I know of. (For example, one of them is based off of Shia Labeouf). However, these correlations for my book are based solely on appearance, not personality, actions, or behavior. The only reason I base my characters off of other people that I know is to have a better ability in describing their appearance. The con to this tactic would be basing your character too closely to who you are imagining your character as. So be careful if you are following my method!