Tuesday, 10 June 2014

Who Wants More Utility?

As an academic economist, I tend to believe in theories which presuppose maximizing behaviour. If an individual desires something and has a chance of getting it at a price low enough to justify the cost, rationality demands that he chooses to get it. Advances in behavioural economics may well come to upset these beliefs of mine, but so far they have not significantly done so. That is really a different story, however, for the purpose of this blog post is to challenge the idea of utility maximization from a different point of view.
Suppose that your lifetime utility is 100. This utility is distributed in a way such that you will live for two finite periods, Period 1 and Period 2, and have the same utility every day of each period. Under one scenario, imagine that daily utility is the same for both periods. Under another scenario, imagine that daily utility during Period 1 is negative, say a million "disutils", and that daily utility during Period 2 is high enough to reach the same total over the course of your life (i.e. 100). If people truly maximize utility, there is no reason for anyone to prefer one scenario over the other, yet I have a feeling many people would not be indifferent about which life they want to live.

Here is another thought experiment: total utility over the course of a life is, say, 50, but one life is finite and the other is infinite (so utility at each moment is likely very small though it could of course be positive, or utility at some moments could be zero or negative, pick your favourite). Now some people would naturally want to live forever (I know I do) and consequently derive utility purely from that prospect. But if lifetime utility is really the same, these people are compensated for dying. Economists do not say that money measures everything; they say that anything measures anything since anything translates into utility. So arguably utility-maximizers should be indifferent also between these scenarios (at least those who somehow do not wish to live forever, if there really is no way of compensating certain people for dying).

Maybe people would actually be indifferent between all of these choices of lives. Any proposition on the topic is untestable. At least I cannot think of any test. The trouble is that once we think of some reason to prefer one scenario over another, what we really say is that that aspect which we prefer gives us utility, but then it should be possible to compensate for the loss of said utility by more utility in the other scenario, which the present Gedanken experiment does. Rational choice is therefore a "closed" system. While I strongly believe it is closed in useful ways, I find it sufficiently plausible that people would not be indifferent between the presented scenarios, and that maybe something other than utility counts.

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