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There's an important part of utility theory that answers this question: utility is not comparable between people, only between options available to a single per

by _dps 12y ago

There's an important part of utility theory that answers this question: utility is not comparable between people, only between options available to a single person. So Yolanda-Yuppie gets more Yolanda-utility out of a lobster than she would out of keeping her $60. Vikram Villager gets more Vikram-utility out of a few more dollars of income than he would out of keeping his lobster. No mainstream utility theorist would claim to quantitively compare Yolanda-utility to Vikram-utility. Edit/Clarification: the essence of social welfare economics is in trying to do interpersonal utility comparisons that yield a social utility function that behaves as much as possible like a personal utility function. Arrow's theorem tells us that this is not possible to do perfectly; any attempt to do so will result in one of several significant deviations from what we consider "utility" for a single person.

rayiner 12y ago
You're correct, but that's the boring way of saying it. The Bengali villager doesn't sell the lobster because he gets less pleasure out of eating the lobster than the San Francisco yuppie. Obviously, he forgoes the delicacy, one with a rich culinary tradition in his country, because he has to. Because he has limited choices while the San Francisco yuppie has many choices. The market works to allocate him a couple of dollars worth of necessities at the cost of forgoing a pleasure for which the San Francisco yuppie is willing to pay $60. I think this situation is a great illustration of the human implication of the economics you just recited.
- icebraining 12y ago
  Why does he have to? He lived before the yuppie offered to pay for it, so he could refuse and eat the damn lobster. All the market has done is given him an extra option.
  - Avshalom 12y ago
    Well he could but unless everybody does then the lobster still gets fished out of his means.
- _dps 12y ago
  At the risk of continuing to be boring, I think it's important not to mix technical concepts with social welfare concepts; they serve different goals and it is easy to get a misleading impression of one when trying to apply it in the other domain. Economics is plagued with these problems (cue half-informed people raging about how "Economics assumes people are perfectly rational, but Ariely told me they weren't [0]! Take that establishment!") Utility is a very specific tool devised to model choice behavior. It is a basic idea of utility theory that "Vikram gets much less utility from the lobster than Yolanda" is not a meaningful statement within the framework. There's no wrangling or wiggle-room with this point; interpersonal utility is formally incomparable. Similarly, it is well-trodden that markets tend to allocate scarce goods to those with the greatest willingness and ability to exchange other scarce goods for them; market theory doesn't presume to say anything about who enjoys the scarce goods the most. This is why, beyond choice and market theory, we need something that addresses social value systems. Utility does not pretend to do this, except to the extent that an individual may value social justice in their personal utility function. So, while I take your point that my post was technical and, yes, dry, them's the ropes when it comes to utility theory. Correct statements tend to be boring ones that don't evoke human interest. If one wants to evoke human interest (a perfectly reasonable goal) I think it's best not to mix in half-appropriate technical concepts when there is substantial potential for confusion. [0] For anyone who is curious, I estimate 80% of Ariely's "irrational" examples are easily explained by understanding that making optimal choices with imperfect information has a cost in time and effort; when you price in this cost in time and effort, making suboptimal-but-easy-to-make or even random choices is actually perfectly rational within the framework.

by _dps 12y ago

rayiner 12y ago

You're correct, but that's the boring way of saying it. The Bengali villager doesn't sell the lobster because he gets less pleasure out of eating the lobster than the San Francisco yuppie. Obviously, he forgoes the delicacy, one with a rich culinary tradition in his country, because he has to. Because he has limited choices while the San Francisco yuppie has many choices. The market works to allocate him a couple of dollars worth of necessities at the cost of forgoing a pleasure for which the San Francisco yuppie is willing to pay $60. I think this situation is a great illustration of the human implication of the economics you just recited.

icebraining 12y ago
Why does he have to? He lived before the yuppie offered to pay for it, so he could refuse and eat the damn lobster. All the market has done is given him an extra option.
- Avshalom 12y ago
  Well he could but unless everybody does then the lobster still gets fished out of his means.
_dps 12y ago
At the risk of continuing to be boring, I think it's important not to mix technical concepts with social welfare concepts; they serve different goals and it is easy to get a misleading impression of one when trying to apply it in the other domain. Economics is plagued with these problems (cue half-informed people raging about how "Economics assumes people are perfectly rational, but Ariely told me they weren't [0]! Take that establishment!") Utility is a very specific tool devised to model choice behavior. It is a basic idea of utility theory that "Vikram gets much less utility from the lobster than Yolanda" is not a meaningful statement within the framework. There's no wrangling or wiggle-room with this point; interpersonal utility is formally incomparable. Similarly, it is well-trodden that markets tend to allocate scarce goods to those with the greatest willingness and ability to exchange other scarce goods for them; market theory doesn't presume to say anything about who enjoys the scarce goods the most. This is why, beyond choice and market theory, we need something that addresses social value systems. Utility does not pretend to do this, except to the extent that an individual may value social justice in their personal utility function. So, while I take your point that my post was technical and, yes, dry, them's the ropes when it comes to utility theory. Correct statements tend to be boring ones that don't evoke human interest. If one wants to evoke human interest (a perfectly reasonable goal) I think it's best not to mix in half-appropriate technical concepts when there is substantial potential for confusion. [0] For anyone who is curious, I estimate 80% of Ariely's "irrational" examples are easily explained by understanding that making optimal choices with imperfect information has a cost in time and effort; when you price in this cost in time and effort, making suboptimal-but-easy-to-make or even random choices is actually perfectly rational within the framework.