The dormitive quality of rational choice

by John Quiggin on October 10, 2007

This Matt Yglesias post has already made it on to my colleague Andy McLennan’s door. It’s short enough to quote in full

I’m not sure I understand why Greg Mankiw thinks economists “don’t understand tipping.” When I was learning economics, I learned that people are utility-maximers and that whenever you see some behavior that doesn’t seem explicable in purely financial terms that must be because people are deriving utility from the foregone financial advantage. Thus, as any economist could tell you, people tip because of the utility they derive from the tipping in much the way that economists can explain all aspects of human life.

Have I ever mentioned that philosophers tend to think that economics is vacuous? Which isn’t to say that you shouldn’t listen to economists. These days, they tend to know a lot of math, and math is a very useful thing.

Matt omitted the irony alerts, but I tried to spell out the same point here.

Given any data on any observed set of problems involving the selection of one or more choices from a set of alternatives, the observed choices can be represented as the maximisation of an appropriately specified function.

Playing straight man to Matt, that doesn’t mean utility functions are useless – the functional representation lets you do lots of math that is much harder if you try to work directly with preferences. But any competent economist knows that utility isn’t an explanation of observed choices, it’s a way of representing them. The representation is simpler if choices satisfy some minimal consistency requirements, like transitivity (if you prefer A to B and B to C then you should prefer A to C).

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