Peter Dorman — The Utility of Utility (about the methodology of economics)

Philosophy of economics — key methodological assumptions.

If you step back, however, this continued fealty to utility is rather strange, since utility does not play either a positive or normative role in any school of thought within psychology, which is presumably the academic discipline that tells us most of what we know about human behavior. 

In formal terms, this is a problem of external consistency. Internal consistency is about whether the elements in a model are consistent with one another; you can test this with algebra. External consistency is about whether these elements are consistent with what is already known by those who work in other domains with other models. If you devise a heat pump based on a set of assumptions about how its components work, and one of these assumptions violates the Second Law of Thermodynamics, your design might be internally consistent but fail the external consistency test. That’s the state of economics today: it uses models which, if you accept their maintained assumptions, are internally consistent, but the assumptions are inconsistent with what research outside the discipline has demonstrated. Or to put it more crudely, if economics is right, psychology is wrong. Who are you going to believe if the question is about human behavior?…

That said, there is a valid use for utility, as a heuristic element in thought experiments. Take game theory, for instance. The analysis of strategic choice can get very complicated, and it’s helpful to construct models in which players attempt to maximize something we call utility; this helps us figure out the logical processes at work. That does not mean, however, that we should assume that real human beings in the real world are crunching out expected utility values of their choices, much less that the normative value of a game’s outcome can be assessed on the basis of how much utility participants are getting. A heuristic device is not a theoretical proposition; it’s just an aid to thought.
The confusion between heuristics and theory runs deep in economics, I’m afraid...

Gadget economics.

My only piece of advice is to stop thinking of economics as a normative enterprise at all, since nothing in their training prepares economists to have a special insight into what makes people better or worse off. Wealthier, yes; better off, no. If you can do that, you will at least abandon one of the main purposes behind unreflected utility-speak.

Yes, but that defeats the normative purpose. As a policy science, macro is supposed to be about making people "better off." That's its appeal in policy formulation.

The other avenue, then, is for economists to fess up to their normative bias and be up front about it instead of sneaking it in to manufacture consent for a particular point of view because "science."

EconoSpeak

The Utility of Utility (about the methodology of economics)
Peter Dorman