Terry Flynn — top economists fail basic literature review shock horror

Promoted from the comments here at MNE on "Beyond Happiness and Satisfaction: Toward Well-Being Indices Based on Stated Preference." by Daniel J. Benjamin, Miles S. Kimball, Ori Heffetz, and Nichole Szembrot.

Terry Flynn, PhD
top economists fail basic literature review shock horror

Beyond Happiness and Satisfaction: Toward Well-Being Indices Based on Stated Preference — Daniel J. Benjamin, Miles S. Kimball, Ori Heffetz, and Nichole Szembrot

More Weekend reading.

Abstract

This paper proposes foundations and a methodology for survey-based tracking of well-being. First, we develop a theory in which utility depends on “fundamental aspects” of well-being, measurable with surveys. Second, drawing from psychologists, philosophers, and economists, we compile a comprehensive list of such aspects. Third, we demonstrate our proposed method for estimating the aspects’ relative marginal utilities—a necessary input for constructing an individual-level well-being index—by asking ~4,600 U.S. survey respondents to state their preference between pairs of aspect bundles. We estimate high relative marginal utilities for aspects related to family, health, security, values, freedom, happiness, and life satisfaction. 

Keywords: happiness, life satisfaction, subjective well-being, stated preference, well-being index

NCBI
Beyond Happiness and Satisfaction: Toward Well-Being Indices Based on Stated Preference
Daniel J. Benjamin, Miles S. Kimball, Ori Heffetz, and Nichole Szembrot

Peter Dorman — Utility and Happiness

The question, after all, is whether the economic choices people make maximize their well-being. To test this we go out and gather various independent measures of well-being. When we find out they diverge in significant ways from revealed preferences, it is weird to use this as a demonstration that the evidence can’t really show what it seems to show, since our hypothesis about utility maximization has to be right. And for “weird” you can also substitute “ideological”.

Rational choice based on utility maximization is essentially the same as Ludwig von Mises axion of human action. It's a priori and unfalsifiable.

Among logicians, the economic definition of utility is called a circular definition. It provides no useful information.

From Wikipedia/Utility:

Cambridge economist Joan Robinson famously criticized utility for being a circular concept: "Utility is the quality in commodities that makes individuals want to buy them, and the fact that individuals want to buy commodities shows that they have utility"[9]:48 Robinson also pointed out that because the theory assumes that preferences are fixed this means that utility is not a testable assumption. This is because if we take changes in peoples' behavior in relation to a change in prices or a change in the underlying budget constraint we can never be sure to what extent the change in behavior was due to the change in price or budget constraint and how much was due to a change in preferences.[10] This criticism is similar to that of the philosopher Hans Albert who argued that the ceteris paribus conditions on which the marginalist theory of demand rested on rendered the theory itself an empty tautology and completely closed to experimental testing.[11] In essence, demand and supply curve (theoretical line of quantity of a product which would have been offered or requested for given price) is purely ontological and could never been demonstrated empirically. 

Another criticism comes from the assertion that neither cardinal nor ordinary utility is empirically observable in the real world. In the case of cardinal utility it is impossible to measure the level of satisfaction "quantitatively" when someone consumes or purchases an apple. In case of ordinal utility, it is impossible to determine what choices were made when someone purchases, for example, an orange. Any act would involve preference over a vast set of choices (such as apple, orange juice, other vegetable, vitamin C tablets, exercise, not purchasing, etc.).[12][13][14] 

An evolutionary psychology perspective is that utility may be better viewed as due to preferences that maximized evolutionary fitness in the ancestral environment but not necessarily in the current one.[15]

Rational choice based on maximizing utility simply states that people choose based on what motivates them to choose but gives no empirical or operational way of determining this, which is required in technical definition in the sciences. It's like the Latin terms  medieval philosophy and medicine that were meant to impress rather than inform, which were roundly satirized after the Renaissance. Conventional economics is stuck in that rut, and conventional economists are too stuck other themselves to realize that look like Scholastic theologians and philosophers. The new Latin used to impress while concealing vacuity is math.

Of course, it is possible to construct formal models of cardinal and ordinal utility as neoclassical economists and game theorists have done, but the question is whether such models are representational, and that requires hypothesis formulation and testing, which in turn requires interpreting the model wrt to what is modeled. That's what technical definition does. Without anchoring a model to what it purportedly represents, it is unfalsifiable.

The Empirical Evidence Against Utility Maximization
ABSTRACT
Current Economics Textbooks and Economists justify a theory of consumer behavior based on utility maximization on a priori grounds. This methodology follows Lionel Robbins’ idea that economic theory is based on logical deduction from postulates which are “simple and indisputable facts of experience.” Strong evidence has emerged from many different lines of research that these “simple and indisputable facts of experience” are contradicted by human behavior. In this article, we summarize some of main contradictions between predictions of utility theory and actual human behavior. Efforts to resolve these contradictions continue to be made within orthodox frameworks, but it appears likely that a paradigm shift is required.

In addition, a model that purports to be causal must demonstrate a basis of causality in terms of some transmission mechanism.  Utility theory says no more than that rational choice is motivated but not how it motivated, which is the issue. Saying that rational choice is motivated just distinguishes the meaning of "rational choice" from say, a whim. It's about the model and not what is modeled.

Econospeak
Utility and Happiness
Peter Dorman | Professor of Economics, Evergreen Stat College

Marshall Auerback — Higher GDP Growth Does Not Equate To Greater Social Well-Being And Happiness

For rich, developing, and transition countries, whether pooled or analyzed separately, there is no time series evidence that a higher economic growth rate increases the rate of improvement in life satisfaction. Doubling the rate of economic growth does not double the increase in life satisfaction; rather, the evidence is that it has no significant effect at all.

If there is any less developed country for which one would expect a positive impact of economic growth on SWB it is China, whose growth since 1990 from an initially very low value has been at the highest rate ever recorded, a four fold multiplication of real GDP per capita in two decades (Heston, Summers, and Aten 2012). Household appliances such as refrigerators and washing machines – quite rare in 1990 – are now commonplace in urban areas. Color television sets currently average over one per household. By 2008, almost one in ten urban households owned a car and China had become the world’s leading automobile producer, according to the OECD.

Yet, the combined evidence from six separate surveys is that life satisfaction in China has not improved, and, if anything, may have declined somewhat, according to Richard Easterlin, a Professor Emeritus at USC, who has made a lifetime study of the phenomenon…. 

Macrobits by Marshall Auerback
Higher GDP Growth Does Not Equate To Greater Social Well-Being And Happiness
Marshall Auerback

While psychologists have long used surveys of reported well-being to study happiness, economists only recently ventured into this arena. Early economists and philosophers, ranging from Aristotle to Bentham, Mill, and Smith, incorporated the pursuit of happiness in their work. Yet, as economics grew more rigorous and quantitative, more parsimonious definitions of welfare took hold. Utility was taken to depend only on income as mediated by individual choices or preferences within a rational individual’s monetary budget constraint. 

Even within a more orthodox framework, focusing purely on income can miss key elements of welfare. People have different preferences for material and non-material goods. They may choose a lower-paying but more personally rewarding job, for example. They are nonetheless acting to maximize utility in a classically Walrasian sense. 

The study of happiness or subjective well-being is part of a more general move in economics that challenges these narrow assumptions. The introduction of bounded rationality and the establishment of behavioural economics, for example, have opened new lines of research. Happiness economics – which represents one new direction – relies on more expansive notions of utility and welfare, including interdependent utility functions, procedural utility, and the interaction between rational and non-rational influences in determining economic behaviour.…