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"The implicit assumption of conventional economics is that the only relevant metric is the magnitude of the absolute change in expenditure." I'm not the first p
by ericb 19y ago
"The implicit assumption of conventional economics is that the only relevant metric is the magnitude of the absolute change in expenditure." I'm not the first person to say this:
http://en.wikipedia.org/wiki/Loss_aversion#Can_loss_aversion_ever_be_rational.3F http://en.wikipedia.org/wiki/Loss_aversion#Can_loss_aversion...
- reitzensteinm 19y agoI'm no economist, I just took a few units a while ago, but I'm pretty sure that's not an implicit assumption, because marginal utility is an important part of economics. In fact the article you linked to says exactly that: "All of the above effects can be expressed in terms of the utility function of money, and, in particular, not regarding money as a linear measure of utility. In other words, if money has diminishing marginal utility, then each dollar is worth less than the one before it. To use the example before, the first $1000 might be worth $1000 to a person, and the second $1000 worth only $950 (in terms of utility). This would not be "loss aversion" but just a phenomenon adequately explained by economic theory."
- ericb 19y agoAt that point in the link they're going over counter-arguments to the standard line. Anyhow, I agree marginal utility is well understood by economists, just disagree that that is the standard way dollars themselves are viewed in classic economic theory. And perhaps I over-reached when I built my straw economist.