Nick Johnson — Karl Marx on utility

Keeper Marx quote explains how capitalism based on liberalism is grounded in the concept of bourgeois utility.

The Political Economy of Development
Karl Marx on utility
Nick Johnson

VOX.eu — Origins of happiness: Evidence and policy implications

Understanding the key determinants of people’s life satisfaction will suggest policies for how best to reduce misery and promote wellbeing. This column discusses evidence from survey data on Australia, Britain, Germany, and the US which indicate that the things that matter most are people’s social relationships and their mental and physical health; and that the best predictor of an adult’s life satisfaction is their emotional health as a child. The authors call for a new focus for public policy: not ‘wealth creation’ but ‘wellbeing creation’.

Bringing down Bentham's utility calculus based on material satisfaction. that can be measured in terms of economics rather than psychological well-being.

VOX.eu
Origins of happiness: Evidence and policy implications
Andrew Clark, Sarah Fleche, Richard Layard, Nattavudh Powdthavee, George Ward

Dan Nixon — Less is more: what does mindfulness mean for economics?

The first thing that it is interesting about this post is that it is about Buddhist economics — remember E. F. Schumacher's Small Is Beautiful and A Guide for the Perplexed? Since then the interest in mindfulness, based on mediation adapted from Vipassanā (Pāli) or Vipaśyanā (Sanskrit). Scientific research is being out the advantages of this Westernized version of the practice, and it has become accepted in business circles as a management technique.

The second thing that it is interesting about this post is that appears on the blog of the Bank of England.

The third thing that is interesting is that the author goes beyond the usual emphasis that mindfulness is a personal technique that improves performance to draw implications from Buddhist teaching about desire and contrasts this to the liberal economic view of utility maximization.

While it can be criticized for only scratching the surface and missing the point of mindfulness, it is a beginning and it is interesting to see that beginning being broached a major Western institution.

Bank of England — Bank Underground
Less is more: what does mindfulness mean for economics?

Dan Nixon, Stakeholder Communications & Strategy Division, Bank of England

Ian Welsh— Problems with Economics: The Cult of Utility

Ian Welsh critiques "utility," "revealed preferences," and (economic) "rationality."

Conclusion: "It's bullshit." 

What's important is welfare and none of these concepts relate to it in a meaningful way. 

Homo economicus is not concerned with welfare in a meaningful sense. Homo socialis is.

Problems with Economics: The Cult of Utility
Ian Welsh

Brad DeLong — Must-Read: Steve Roth: The Pernicious Prison of the Price Theory Paradigm

Cuts to the chase.

WCEG — The Equitablog
Must-Read: Steve Roth: The Pernicious Prison of the Price Theory Paradigm
Brad DeLong

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

Jason Smith — The emergent representative agent [1]

Wonkish, but of interest if interested in mathematical modeling in economics.

Information Transfer Economics
The emergent representative agent [1]
Jason Smith

Noah Smith — "The Case For Mindless Economics", 10 years on

This is a mindless argument. There is no rule about choosing assumption for modeling other than the usefulness of the model. A model might a heuristic or a thought experiment not designed or represented as realistic. However, models that are offered as being realistic face the test of evidence.

The best explanation is the one that satisfies the traditional four criteria — consistency, correspondence, simplicity, and usefulness — more fully than others.

Often there is not a best explanation in that meets all criteria, but any model that claims to be representational of reality must pass the correspondence test in terms of evidence in terms of what speaks for it and what speaks against it.

At the same time, it is possible that the currently best explanation, even though it is not terribly representation of reality, might be the best explanation available given the criteria, that it, it is consistent and relatively simple. It may be that it's just not very useful to rely on predictively.

Anyway, Noah sets forth the issues.

However, if a highly predictable model were ever generated in finance, that would be the end of a lot of financial transaction unless fools were taking the other side of the trade.

Noahpinion
"The Case For Mindless Economics", 10 years on
Noah Smith | Assistant Professor of Finance, Stony Brook University

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

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

Merijn Knibbe — Gary Becker, a one trick pony?

One of the weak underbellies of neoclassical theory is of course the fact that, despite all efforts to estimate ‘revealed preference’, neoclassical economists have never succeeded in consistently estimating their core variables like ‘utility’, ‘the natural rate of interest’, ‘natural unemployment’ and the like. There is nothing neoclassical even close, or far, to the CRC handbook of chemistry and physics, the Diagnostic and statistical manual of mental disorders or, when it comes to macro-economics, the System of National Accounts. And no, that’s not a neoclassical manual. Economic statistics are chartalist to the bone (it’s about flows and stocks of state-defined money, not about utility), have a totally different concept of unemployment than the one embedded in neoclassical macro DSGE models, are estimated following a bottom up approach, i.e. based upon agent based data and do not assume rationality or ergodicity (the economic phrase for predestination). Gary Becker did not succeed in improving this situation. This does not directly disqualify him as an economist but the fact that he, despite this fact, continued to push and glorify his method is weird. He tried to use the concept of ‘utility’ to explain all kinds of behaviour but as he could not estimate ‘utility’ – he failed. Neoclassicals do use data – but have to take recourse to results of other branches of science and economics to be able to do this. There is no independent body of neoclassical empirics.

Real-World Economics Review Blog
Gary Becker, a one trick pony?
Merijn Knibbe

Lars P. Syll — Foundations of Paul Samuelson’s Revealed Preference Theory

Wonkish but important in taking down the foundations on which the neoclassical assumption of equilibrium based, positing a representational rational agent using utility maximization as the driver. The problem lies in defining "utility" in a way that provides a connection between the theory and the world it purports to explain through a general description. The problem with "utility" is that it is subjective, hence, non-descriptive. Samuelson tried to overcome this bias using revealed preference, which is behavioral, hence, can be described, e.g., through indifference curves. The post is why this approach is also deficient. Neoclassical economics presumes a downward sloping demand curve, and this cannot be shown convincingly using revealed preference as Paul Samuelson had attempted.

Lars P. Syll
Foundations of Paul Samuelson’s Revealed Preference Theory

Chris Dillow — Happiness Vs Options

Utility is not the same as happiness.

In Book I of Nichomachean Ethics, Aristotle asserts that every rational agent acts for an end and humans generally agree that this end is happiness. He goes on to observe that people disagree over what happiness is. He then consider various options, including what we now call utility, and rejects them as insufficient to meet his criteria because they engage only a partial aspect of human capacity.

Aristotle then elaborates his own view: While happiness is desired as an end, that is, for itself and not for anything else, it cannot be sought directly because it is a byproduct of excellence in living, that is, unfolding  human potential over the course of one's life by perfecting one's inherent capacity as human being, as well as one's individual talents.

The view of perennial wisdom is similar, but it includes only Aristotle's first criterion, that of perfecting one's capacity as a human being by realizing the full potential of consciousness, the outcome of which the abiding happiness of transcendental bliss. It is said to be "transcendental" because it is of the nature of consciousness and is not dependent on mind, body, or environment.

This view was expressed in a similar vein but more in terms of personal experience by Socrates in describing the method his teacher, the priestess Diotima, had taught him in the famous "ladder of love" passage in the dialogue called The Symposium  210a-212b.

Stumbling and Mumbling

Happiness Vs Options

Chris Dillow | Investors Chronicle (UK)

Miles Kimball — The Egocentric Illusion

Miles Kimball reflects on David Foster.

Confessions of a Supply-Side Liberal
The Egocentric Illusion
Miles Kimball

Perennial wisdom, the universal mystical spirituality, or "core spirituality," at the heart of all religions and wisdom traditions is about liberation from "the egocentric illusion" also known as spiritual ignorance.

Jesus in the The Gospel of Thomas, logion 3: "...if you will not know yourselves, you dwell in poverty and it is you who are that poverty."
—Thomas O. Lambdin translation

(for jrbarch)

Steve Roth _ The Luddite Fallacy Fallacy

I think the Luddite Fallacy argument ignores two things:

1. The limits to human capabilities. By definition, 50% of people have an IQ below 100.

2.The declining marginal utility of innovation and consumption.

Asymptosis
The Luddite Fallacy Fallacy
Steve Roth

Economics and ethics — rationality and utility

 In Nichomachean Ethics, Aristotle begins with the principle that every agent acts for an end that the agent regards as a "good." This is the utility principle. Aristotle continues, saying that almost everyone agrees that goods falls under the category of what results in happiness. This is the principle that unites utility with satisfaction.

Aristotle concludes from these two principles that happiness is the by-product of goods. We would say that satisfaction is a consequence of utility. Some would argue over whether satisfaction is equivalent to utility or a necessary condition for it, or a sufficient condition, or and necessary and sufficient condition.

Aristotle then goes on to say that that there are many goods that bring satisfaction, depending on the type of desire and the relative strength of competing desires, or as we would say, preference and indifference.

Then Aristotle notes that the ethical issue is ranking goods and determining whether there is a "natural" or "proper" good for man. That is to say, it is generally agreed by all but the morally immature that some apparent goods are not good at all in the larger scheme of things. Customs, and the rule of law in civilized society, distinguish these. Part of the socialization of children through upbringing and education is about learning these distinctions.

But the issue, according to Aristotle is whether there is some higher principle operative. Aristotle opines that man is a "rational animal" and therefore that this higher principle must accord with reason.

Then Aristotle examines existing ethical theories about the good that is to be pursued to gain happiness. He analyzes them to show who they are found wanting because they do not sufficiently satisfy man's rational nature and thus provide genuine and abiding happiness but rather only fleeting satisfaction.

According to Aristotle, the true good for man lies in unfolding his potential as a rational animal by developing his rational faculties and actualizing this potential as human "excellence." The Greek term that Aristotle uses is arete, which is often also rendered into English as "virtue." But "virtue" has the connotation now of conforming to conventional mores. Aristotle definitely did not mean that.

For Aristotle achieving excellence meant unfolding full potential as human being and also as an individual. While individual potential differs, human potential culminates in contemplating the unmoved mover as final cause, Aristotle's version of the Platonic good as universal principle.

This is basically the same teaching as is found in the teaching of the sages of all ages and place. It is called perennial wisdom.

Platonic thought dominated Western thought until he middle ages, when Aristotle's works that had been preserves in Arabia were re-introduced. But early Christianity was shaped by Augustine's philosophy, which was heavily Neoplatonic.  After the re-introduction of Aristotle, Aquinas synthesized Augustine with Aristotle.

For Aquinas the will is the rational appetite. It is free will that makes free choice possible, and humans can choose among many desires in their quest for satisfaction. The object of the will is alway an end that it takes to be apparently good. Humans, being rational animals, are presente with choices whose object is either carnal or rational. Carnal desires, which are "lust," can never be satisfied since their objects are ephemeral. Only rational desires can be satisfied, since their objects are eternal and invariant.

The will of all sentient being most prefers existence. Aquinas distinguishes between transitory existence ended by death and rational being, which is universal and unchanging and whose attributes are universality (oneness), truth (knowledge of reality), goodness (attraction) and beauty (satisfaction). The true good of a rational being is love for being qua being, not this or that. That good is found in contemplation and made manifest by imbuing ones' action with love.

Bonaventure was a contemporary of Aquinas, and his philosophy emphasized will and love over Aquinas's emphasis on intellect and knowledge. This tension would manifest in subsequent culture as the dichotomy between rationalism and romanticism, just as differences between Plato and Aristotle gave rise to idealism and realism.

Then we arrive at the modern era and modern philosophy, where these same issues dominate in different form. To paraphrase Whitehead,  Western thought is a footnote to Plato. (Aristotle was Plato's student).

Through J. S. Mill economists adopted Jeremy Bentham's analysis of utility, which defines "utility" in terms of usefulness. Earlier thinkers had found this view inadequate to man's nature as rational being in that it doesn't distinguish sufficiently among apparent goods and their ranking.

Mill rejected the simplicity of Bentham and reiterated the distinction between carnal and rational goods thus, "It is better to be a human being dissatisfied than a pig satisfied; better to be Socrates dissatisfied than a fool satisfied. And if the fool, or the pig, are of a different opinion, it is because they only know their own side of the question."

Even über-Libertarian and Austrian School economist Murray Rothbard distinguished between a genuine Libertarianism like his own that leaves individuals free from coercion to choose as they please, the only contraint being not coercing others, from what he called "modal libertarianism" that conflates liberty with license.

Thus the question remains about criteria for evaluating types of preference based on their objects as a matter of ethics, and using such criteria to order societies through custom and tradition, institutional arrangements including governing, and the rule of law.

This is about setting boundaries on behavior and assumptions, methods, and criteria for doing so. All rationales for alternatives rest on assumptions that are either stipulated, or else involve circular reasoning or ever descending turtles (infinite regress). Criteria are context-specific, so different worldviews are defined by the criteria that serve as boundary conditions and norms. There are no "transcendental" criteria that all people agree upon without qualification.

In pluralistic societies, the society must develop a culture whose boundary conditions are sufficiently open and flexible as to be able to order the society and also develop institutional arrangements that avoid conflict among groups with greatly varying viewpoints. In a liberal democracy that requires tolerance and compromise.

Nic Marks — Measuring what matters: the Happy Planet Index 2012

Interesting project, only in the beginning stages. Check out the Happiness Index as it is constructed so far, as well as country rankings.

Read it at NEF — New Economics Foundation

Measuring what matters: the Happy Planet Index 2012
Nic Marks | 
Founder of the centre for well-being

Michael Norton — How to buy happiness

TEDxCambridge — Michael Norton: Money can buy happiness

Harvard Business School professor Michael Norton's counterintuitive talk challenges the way we think about money. If you think money can't buy happiness, maybe you're not spending it right.

TEDxEast Dr. Michael Norton: What to do with your money?

Dr. Michael Norton shares his research from behavioral economics about ways to spend money to increase happiness. Hint: it is not about buying more for ourselves...

Mark Thoma — Fairness Matters for Efficiency

Prof. Thoma calls attention to the work of Professor Armin Falk of Bonn University — with a video of his INET presentation. Thoma's summary is short and important as a refutation of a simplistic view of rational expectations based on maximizing utility in the context of methodological individualism. Professor Falk's work demonstrates that humans are fundamentally social rather than individual, as methodological individualism assumes to be self-evident apriori. Empirically this isn't the case.

Read it at Economist's View

Fairness Matters for Efficiency
by Mark Thoma