Utility Does Not Mean Utility
I find it extremely frustrating that economists, who like to color themselves intellectually rigorous folk, insist on confusing people about the meaning of words. Here’s Robert Frank in Luxury Fever:
In economist’s parlance, it is customary to speak not of happiness, but of utility. The analogous construct in the psychological literature is subjective well-being, a composite measure of overall life satisfaction. For present purposes, little will be lost if we view both expressions as being roughly synonymous with satisfaction.
The problem is that is “customary” for economists to speak not of happiness, but of utility, in a most confusing and haphazard fashion. Conceptually, happiness has nothing to with utility in economics, nor does subjective well-being, or subjective satisfaction. Utility is way of representing an ordering of preferences. It simply isn’t a psychological concept, nor a value concept, nor does it imply either. A utility function is just a little machine in which you can put an ordering ofpreferences, a pair of alternatives, and have something that somebody decided to call a “utility” assigned to each alternative, the most preferred getting the greater utility.
If I prefer the presence of a mouse in Paul Krugman’s kitchen over the absence of a mouse, and there is a mouse in Paul Krugman’s kitchen, then my preference is "satisfied" and I “get” more utility from this state of affairs than the alternatives, even if it in no way enters into my life or experience. The world being such that my highest ranked preferences are semantically satisfied, and that I am “getting” as much utility as possible relative to my ordering, logically has nothing at all to do with my subjective well-being.
As Lionel Robbins put it, just as economics was systematically expunging the psychological from economics:
So far as we are concerned, our economic subjects can be pure egoists, pure altruists, pure ascetics, pure sensualists or – what is much more likely – bundles of all these impulses.
That is to say, economics makes no substantive assumptions about the contents of preferences. It cares only for the form of preferences, namely, that they be consistent.
So why does Robert Frank, and almost everyone else in the economics profession, insist on keeping us all in a state of confusion? Contra Frank in the preceding page of Luxury Fever, economists qua rigorous appliers of utility theory, don’t think that being wealthier ought to make you happier. They think that a bigger budget gets you a more preferred bundle of goods, and more preferred means, by definition, more utility. But since utility is a not a subjective psychological state (since semantic satisfaction is not), no one should be surprised that having more utility won’t make you more anything, subjectively. The world could be exactly the way you prefer it, and you could be miserable, because you could prefer to be miserable.
The “paradox” of our being wealthier, but no happier, is a paradox only relative to a substantive psychological theory, which is what utility theory isn’t. Bentham did think that money was a proxy for pleasure, and that pleasure constituted happiness. So this would be a paradox for Bentham. But Bentham’s vulgar psychological egoism and hedonism are, as Robbins more or less points out, simply not a part of economic theory. And the paradox emphatically isn’t one for a modern utility theorist. The “paradox” is just proof that utility and happiness are non-identical, which didn’t need to be proved anyway, since the only identities in an axiomatic theory are definitional.
[Update: What is “semantic satisfaction”? It is the “fit” between the content of a propositional attitude and the world. In the case of a belief, if the content of the belief matches the world, then its “satisfaction conditions” are met. In the case of a preference, if the world matches the content of the preference, then its satisfaction conditions are met. This is not the “I can’t get no satisfaction” sort of satisfaction. Which is why preference satisfaction talk compounds the confusion over utility. It need not be satisfying to have one’s preferences satisfied, and so one’s utility may have no utility for creating utility, or, in other words, may be of little use in bringing pleasure.]
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Well said, Will. Damn the conceptual muddiers. You mention two sorts of cases that highlight the difference between economic utility and psychological well-being. In one, an agent’s preference is satisfied unbeknownst to the agent. And how can that have anything to do with well-being. In the other, an agent’s preference is satisfied, and it’s known to the agent, but its being satisfied doesn’t contribute to the agent’s well-being. Clarity in conceptual distinctions is fine, nay, GREAT — but it’s not like these notions are UNrelated.
As for the first case, there are probably counterfactual connections. Were you to become aware that your preference had been satisfied, you’d get a psychic boost — or had you been aware, you’d have gotten a boost. There are often indirect connections too. Suppose your preference gets satisfied, and you never discover as much, but its satisfaction nevertheless ends up benefiting your life, and thus enhancing your subjective well-being.
As for the second, well, desire-satisfaction theories of well-being aren’t CRAZY. They might not do all the work we want, but at least they capture some important insights, such as that there’s an intimate connection between desire-satisfaction and pleasure, or well-being. The connection is so intimate that often enough we can use preference patterns as indicators of an individual’s well-being. Invoking hypothetical, idealized desirers makes this an even stronger strategy. But even a relatively healthy individual’s ACTUAL utility functions, considered holistically and over time, are a decent indication of what’s really good for her.
Economists shouldn’t be sloppy on this point, I agree. But the above factors probably figure into an explanation of why they sometimes are.
And, I prefer two mice in Krugman’s kitchen.
cheers,
Austen
Look, there are some economists who claim that utility is nothing more than a representation of a pattern of behavior. But those economists are (not to put too fine a point on it) either lying to others or deceiving themselves. What most economists *really* think is that utility represents preferences, and preferences really are — at least for most people — connected to some psychological notion of subjective well-being.
You say that utility is not a psychological concept, but rather an ordering of preferences. Well, what are preferences if not a psychological concept? The very notion of preference invokes desires, needs, wants, etc. Now, it’s certainly possible to imagine all sorts of preference orderings that represent preferences that no one has. Those orderings would have no psychological content — and no empirical content, either. Nonetheless, we are interested in preference orderings only because we think some of them *do* correspond to psychological states in a way that affects behavior.
Now, what about that weird preference for there to be a mouse in Krugman’s kitchen? Logically, nothing prevents us from imagining such a preference ordering. But if that preference ordering has *no* connection to someone’s subjective sense of well-being (broadly construed), it would be pointless for us to imagine that preference ordering. The ordering becomes useful if there exist some individuals who find the presence of a mouse in Krugman’s kitchen a pleasing enough idea that it will affect their choices in some way.
You are right, however, that there’s not necessarily a “happiness paradox” for economists when increased income doesn’t seem to produce greater subjective happiness. That’s because economists understand that preferences may include things other than pure hedonic pleasure-net-of-pain. Indeed, this is why economists adopted the word ‘utility’ in the first place — to indicate that the preferences represented by utility need not be purely hedonic. But that doesn’t mean they are not psychological. Hedonic pleasure/pain is just a subset of the relevant psychological states that can play into preference formation.
The title should be this:
‘Utility’ Does Not Mean Utility
Right?
BTW, in case you’re wondering, I do realize that I’m a jackass for making that last comment. I’m well aware…
Glen, I know that most economists really think that preferences are like desires, and that satisfying desires leads to subjective well-being.
Obviously, economics isn’t predictive unless one posits some regularities in preference orderings. The trouble is, economists would like two incompatible things: (1) for economics to be a priori and (2) for economics to be predictive. But you can have one or the other. Yet economists try to split the difference by substituting their folk psychological theory for a proper psychological theory, and just hope no one calls bullshit, so they don’t have to leave the armchair.
Also, I didn’t say preference wasn’t in some sense a psychological notion. Preferences, like beliefs, are mental states. What I said was that preference satisfaction wasn’t a psychological state. If a mouse walks into Krugman’s kitchen and thereby fufills the satisfaction conditions of my preference for a mouse there, my global mental state won’t have changed a bit. If utility is what you get when the world matches a preferences, then the utility I get from Krugman’s mouse also fails to alter my overall mental state.
Austen, I didn’t mean to say that preference satisfaction couldn’t feel good, or otherwise affects one’s life, just that, on the official economist’s theory of preference and utility, the connection between preference satisfaction and pleasure, well-being, or anything subjective, is decidedly contingent.
I do sort of think desire satisfaction theories of well-being are crazy. Counterfactual or full-information desire satisfaction theories aren’t crazy, but then they’re really not desire satisfaction theories at all, especially if what it turns out that a rational person ought to desire is the good. Tyler Cowen has pointed out a number of difficulties here in his excellent preference sovereignty paper… um… here:
http://www.gmu.edu/jbc/Tyler/preferencesovereignty.PDF
Happiness comes not so much from satisfying preferences as from avoiding a life where the net difference between preference satisfactions and frustrations is higher than in the simpler life, but the ratio of preference satisfactions to frustrations is lower. So a simple farmer could, in fact, be much happier than a complex city dweller. Even though fewer preferences are satisfied, the farmer is happier because the utility gained in proportion to the utility sought is great.
Ignorance may truly be bliss.
A lot of the problem in understanding happiness and satisfaction evolves from simplifications necessary for the two-good tradeoff models we economists use for utility theory. We can only reach a certain level of satisfaction at a given level of resources for any two goods. We could satisfy any number of two-good tradeoffs and still not be happy.
This is precisely why money can’t buy happiness.
However, if the city-dweller has many things to want and the farmer few, it is easy to understand why so many psychiatrists exist to serve the over-achievers. They can’t get no satisfaction (happiness, really) because they want and expect so much. They get quite a bit of total utility, but it is small in relationship to their wants. The farmer, on the other hand, may get less utility measured against the same yardstick, but be far happier because his proportion of total wants has been satisfied.
Thus… advertising. It makes us want more things. Our total utility may be quite high, but it is less than it could be if we just had that one more thing.
Which brings up the problem of preferences being rational.
Let’s say you’re terribly depressed, and you prefer to stay in bed versus a walk in the sunshine (which in a rational state you know would be far better in alleviating your current state). You stay in bed because of the irrational assumed utility you have from the bed.
Whether we’ve optimized utility can only be measured in hindsight, then, unless we are totally ex ante rational… which I safely assume we are not. This breaks down the whole construct of ex-ante rationalism required for “economic man.” We are left with a hodge-podge of irrational utility-seekers, the choices of which can only be measured statistically rather than exactly.
Will, I think you’re absolutely right. (Although I’ve not read Frank’s book and I would be surprised if he’s been mistaken or unclear.) Utility maximisation means a lot less than most people think it means.
More discussion over a beer.
Tim, I was particularly annoyed at Frank because he’s a very sophisticated economist and I know he knows better. I think there’s a rhetorical impulse at work here. He’s an economist. Economists know about utility in the technical sense. People care about utility in the Bentham-Mill experiential sense, and about SWB, so Frank says that they’re all the same thing, so that he can claim expertise in something that people actually care about.
How do you “‘get’ more utility from this state of affairs than the alternatives, even if it in no way enters into [your] life or experience”? To me this means you have no knowledge of it happening, so it affects you in no way whatsoever.
How can “it need not be satisfying to have one’s preferences satisfied”? Isn’t that the definition of a preference (leaving aside the “it’s the journey not the destination” considerations)?
That’s why “get” is in scarequotes. You don’t really get utility. Utility is just a way of representing your preference ordering. It’s not mental state.
I elaborate on the ambiguity of “satisfaction” in the update at the end of the post.
Your response doesn’t address my questions. The first because that’s not the part of the sentence that confuses me, the second because I understand the difference between the different uses of the word ’satisfy’. Perhaps I should rephrase a bit:
How does something that in no way enters into your life or experience have anything to do with utility/happiness/preference fulfillment? If I don’t know about Krugman’s mouse, no preference of mine has been satisfied.
How can it need not be satisfying to have one’s preferences fulfilled? Isn’t that the definition of a preference? There is the possibility that you thought you preferred something but find out that you don’t, but I don’t think that’s what you mean.
I am interested in what you are saying here. The key question I think: is money a proxy for pleasure, and that pleasure constituted happiness? what money is: goals or resources?