Austrians, what is "utility" exactly?

[StrangeLoop]

From an Austrian perspective, can someone explain–in a detailed fashion–what the term “utility” actually denotes? I know that Austrians recognize its existence (and believe it can be ranked ordinally), but I am not certain how it is defined by Austrian economics.

[adam_knott]

StrangeLoop:

I’ll attempt an answer from a Misesian-influenced perspective:

The “utility” of some object, process, or event (X), is this object, process, or event, viewed by individual actor (A) as a means toward some goal or end (Y).

When or if X is viewed by A as a means toward Y, then X has “utility” for A. X can be “utilized” (as A believes) as a means of bringing about Y.

Mises considered himself an advanced “utilitarian” in the above sense of the term. He held that the only meaningful standard of conduct and action is whether or not the means utilized are fit to bring about the end aimed at.

As for the ordinal ranking of utility, I believe it is important to clarify that in the Misesian interpretation, the ranking is done only through action. Thus, in an important sense, regarding the means chosen by A, there is only one rank that is ever established by A: rank #1 (in which case numbers aren’t necessary or instructive)

In Mises’s conception, an assumed numerical scale of ranks going above 1 (rank 1, rank 2, rank 3, etc.) is considered only an immaterial tool of thought.

But we can also express this differently, and conceive that if A constructs a numerical scale of values or ranks (1, 2, 3., …) he does so as a means toward some end, and as he does so, he ranks the doing of this (constructing a scale of rank or value) as #1.

The main point is that the ordinal ranking in the Misesian interpretation is a rank between that which is chosen and everything else not chosen. In this kind of ranking, it is more accurate to conceive of the difference between “1” and “0” (the thing chosen versus the null set), than it is to conceive of the difference between 1, 2, 3, and 4 (an establishment of a numerical hierarchy).

The idea of identifying two or more concrete things, and assigning numbers of rank to each thing, is something different than the concept of a “uni-presence” that by its presence, excludes all else.

[StrangeLoop]

@Adam Knott

When or if X is viewed by A as a means toward Y, then X has “utility” for A. X can be “utilized” (as A believes) as a means of bringing about Y.

I might be mistaken, but I actually think you are wrong. I believe utility is considered the benefit(s) of the end itself, not the means used to attain it.

[nirgrahamUK]

I’m not entirely sure what kind of answer you are asking for.

Utility denotes that subjective valuation on the part of an agent which explains why said agent acts in the way that they do

[StrangeLoop]

@nirgrahamUK

Utility denotes that subjective valuation on the part of an agent which explains why said agent acts in the way that they do

What is “valuation,” then?

P.S. Please believe that I am not asking this to be a jerk.

[Catalan]

I consider utility to be the value of the economic good in question towards the purpose of reaching an end. The end itself has a utility of its own. Let’s take an apple and an orange, and let’s say that I ascribe to the apple a higher utility than the orange. I believe this because the satisfaction garnered from the apple is higher than that of the orange. To be more specific, the individual is looking to attain a specific satisfaction (let’s call it satisfaction X). The apple is valued higher than the orange because the apple is a superior means towards the satisfaction (the apple itself is not a satisfaction).

This can also incorporate, then, the fact that it may take a number of economic goods to attain a certain end, each with their own utility (that is, their utility is not equal to the end attained).

[ClaytonB]

Google search turned up this. Skip the first 8 or 9 paras.

Clayton -

[nirgrahamUK]

@Rothbard

It is highly useful to assign a name to this value scale held by all human actors. We are not at all concerned with the specific content of men’s ends, but only with the fact that various ends are ranked in the order of their importance. These scales of preference may be called happiness or welfare or utility or satisfaction or contentment. Which name we choose for value scales is not important. At any rate, it permits us to say, whenever an actor has attained a certain end, that he has increased his state of satisfaction, or his contentment, happiness, etc. Conversely, when someone considers himself worse off, and fewer of his ends are being attained, his satisfaction, happiness, welfare, etc., have decreased.

All action is an attempt to exchange a less satisfactory state of affairs for a more satisfactory one. The actor finds himself (or expects to find himself) in a nonperfect state, and, by attempting to attain his most urgently desired ends, expects to be in a better state. He cannot measure the gain in satisfaction, but he does know which of his wants are more urgent than others, and he does know when his condition has improved. Therefore, all action involves exchange—an exchange of one state of affairs, X, for Y, which the actor anticipates will be a more satisfactory one (and therefore higher on his value scale). If his expectation turns out to be correct, the value of Y on his preference scale will be higher than the value of X, and he has made a net gain in his state of satisfaction or utility. If he has been in error, and the value of the state that he has given up—X—is higher than the value of Y, he has suffered a net loss. This psychic gain (or profit) and loss cannot be measured in terms of units, but the actor always knows whether he has experienced psychic profit or psychic loss as a result of an action-exchange.18

Human actors value means strictly in accordance with their valuation of the ends that they believe the means can serve

@Mises: Human Action

Utility means in this context simply: causal relevance for the removal of felt uneasiness. Acting man believes that the services a thing can render are apt to improve his own well-being, and calls this the utility of the thing concerned. For praxeology the term utility is tantamount to importance attached to a thing on account of the belief that it can remove uneasiness. The praxeological notion of utility (subjective use-value in the terminology of the earlier Austrian economists) must be sharply distinguished from the technological notion of utility (objective use-value in the terminology of the same economists). Use-value in the objective sense is the relation between a thing and the effect it has the capacity to bring about. It is to objective use-value that people refer in employing such terms as the “heating value” or “heating power” of coal. Subjective use-value is not always based on true objective use-value. There are things to which subjective use-value is attached because people erroneously believe that they have the power to bring about a desired effect. On the other hand there are things able to produce a desired effect to which no use-value is attached because people are ignorant of this fact.

[adam_knott]

Mises: Human Action:

**“**Utility means in this context simply: causal relevance for the removal of felt uneasiness. Acting man believes that the services a thing can render [the means, X] are apt to improve his own well-being [the end, Y], and calls this the utility of the thing concerned. For praxeology the term utility is tantamount to importance attached to a thing [the means, X] on account of the belief that it can remove uneasiness [the end, y]. The praxeological notion of utility (subjective use-value in the terminology of the earlier Austrian economists)…”

(bold & bracketed added)

[StrangeLoop]

@nirgrahamUK

@Rothbard

These scales of preference may be called happiness or welfare or utility or satisfaction or contentment. Which name we choose for value scales is not important. At any rate, it permits us to say, whenever an actor has attained a certain end, that he has increased his state of satisfaction, or his contentment, happiness, etc. Conversely, when someone considers himself worse off, and fewer of his ends are being attained, his satisfaction, happiness, welfare, etc., have decreased.

All action is an attempt to exchange a less satisfactory state of affairs for a more satisfactory one.

@Mises: Human Action

Utility means in this context simply: causal relevance for the removal of felt uneasiness. Acting man believes that the services a thing can render are apt to improve his own well-being, and calls this the utility of the thing concerned.

Those are immensely useful quotes. Thank you. I recently read a paper titled Neuroscience and Paternalism that argues “that three separable neural systems are relevant for choice and welfare: a hedonic ‘liking’ system (welfare), a ‘wanting’ system that guides choice, and a learning system that, ideally, links information stored in the other systems so that people choose to learn what they truly like.” That is what spurred my questioning of the Austrian-economic position on utility.

That is, pace Mises and Rothbard, happiness (i.e., welfare, satisfaction, well-being) can be radically divorced from a choice; in other words, it is not necessarily the case that “acting man believes that the services a thing can render are more apt to improve his own well-being,” but rather than one can want what one doesn’t even like. In the aforementioned paper, for example, genetically-engineered mice neurochemically wanted goods more, but derived less satisfaction from them.

I’m not willing to defend this position against counterarguments, although I am personally now considering this neuroeconomic approach and it is having an effect on my own philosophy. I have found it immensely interesting, since it avoids the circular position typical of revealed-preference theory: what one chooses is one’s highest preference and one’s highest preference is what one chooses.

[StrangeLoop]

Thank you to all who have contributed answers. I very much appreciate it.

[ClaytonB]

The most accessible and sensible description of utility I have ever read is in Bastiat’s [Economic Harmonies](http://www.econlib.org/library/Bastiat/basHar2.html#Chapter 2). He says,

The soul (or, not to become involved in spiritual questions, man) is endowed with the faculty of sense perception. Whether sense perception resides in the body or in the soul, the fact remains that as a passive being he experiences sensations that are painful or pleasurable. As an active being he strives to banish the former and multiply the latter. The result, which affects him again as a passive being, can be called satisfaction.

From the general idea of sensation come the more definite ideas of pain, wants, desires, tastes, appetites, on the one hand; and, on the other, of pleasure, enjoyment, fulfillment, and well-being.

Between these extremes is interposed a mean, and from the general idea of activity come the more definite ideas of pain, effort, fatigue, labor, and production.

Bastiat makes a couple interesting observations:

• Sense experience qua sense experience and the states of mind to which sense experience gives rise are brute facts to the soul or consciousness. It is what it is. I think this idea is infused into our language and culture. Consider the many tropes surrounding falling in and out of love as a purely involuntary process. Now, we all know that we actually have complete control over the actions we take in response to romantic feelings. But these feelings are experienced so powerfully and so passively that we portray it in fiction as something that is actually involuntary.

• Sense experiences can be thought of as a series of discrete events with a binary outcome, pleasure or pain. This removes the problem of trying to think of “how much” pleasure or pain someone derives from something and cuts it down to the discrete, binary scale of whether it is an event the person would like to experience more in the future or avoid in the future. I have no doubt this could be reduced to strictly neurological language.

• The actions which a person takes in response to sense experiences have the aim or end of multiplying pleasurable sense experiences and reducing painful sense experiences.

This doesn’t quite get you to utility but I think it’s a good metaphysical discussion from which to begin.

Clayton -

[nirgrahamUK]

I’m not willing to defend this position against counterarguments

I shan’t bother offering those critiques then…, even though I could use Lord Robbins to put the smack down (and from 60years ago!)

[StrangeLoop]

@nirgrahamUK

I’m not willing to defend this position against counterarguments

I shan’t bother offering those critiques then…, even though I could use Lord Robbins to put the smack down (and from 60years ago!)

From the article previously cited:

Pareto and his contemporaries, such as Edgeworth and Jevons, all believed in the “concrete deductive method” of John Stuart Mill, which starts with simple empirical regularities or “laws” and makes deductions from those regularities.3 Furthermore, all of these scholars believed that understanding the hedonic basis of utility was necessary, in a form that is now called psychology (but was not called psychology then). As Jevons wrote: “But it is surely obvious that economics does rest upon laws of human enjoyment; and that, if those laws are developed by no other science, they must be developed by economists. . . . [T]he theory of economics must begin with a correct theory of consumption.”

Pareto’s view was the opposite: he thought rooting economic preferences in psychological detail was an unnecessary burden. . . . Pareto advocated divorcing economics from psychology by simply assuming that unobserved utility is necessarily revealed by choice. . . . Remember that Pareto did not win this argument about how to proceed by mathematical proof or data. The equation of utility with choice was not a scientific discovery on par with a powerful theorem or solid empirical regularity. Pareto simply asserted that, as a matter of convenience, it was okay to give up on understanding the “essence of things.”

Of course, the equation of utility and choice was also historically justifiable in the early 1900s because measuring utility directly, at that time, was as far-fetched as, say, sending people to the moon or cloning animals. In Pareto’s day there was no ability to place electrodes into a monkey or human brain and record firing rates of individual neurons, to alter genes in mice and see what those mice can’t do, to record online brain activity with 3-mm spatial resolution using PET or fMRI, to identify areas of brain damage (lesions) in humans and see what skills those humans lack, to genotype people and correlate genes with behavior and skill, to give humans drugs and see how their behavior changes, or to create “temporary lesions” using transcranial magnetic stimulation (TMS).

The huge advances in all these tools force the reader to draw one of two conclusions: (1) Pareto was right in his own time—he and his peers shouldn’t have tried to measure utility directly, it was hopeless—and his intellectual heirs are still right today, because their tools can’t possibly measure utility, or (2) Pareto was right then because the tools didn’t exist, but the neo-Paretians are wrong now because we have tools to measure utility that didn’t exist in Pareto’s time (and the tools will only get better). Conclusion (1) might be right, but betting that something is impossible in science is dangerous and neglects the option value of exploring wild ideas. Conclusion (2) is the progressive conclusion with upside potential.

The ideas in this Essay are not an insistence that revealed-preference theory has not been useful. It has, and will continue to be. But the usefulness of one theory tells us nothing about whether an alternative approach might prove equally useful.

I personally believe it’s scientifically backwards to revere those arguments “from 60years [sic] ago.”

From Camerer’s paper, Austrians side with option 1: “Pareto was right in his own time—he and his peers shouldn’t have tried to measure utility directly, it was hopeless—and his intellectual heirs are still right today, because their tools can’t possibly measure utility.” However, I fully endorse option 2: “Pareto was right then because the tools didn’t exist, but the neo-Paretians are wrong now because we have tools to measure utility that didn’t exist in Pareto’s time (and the tools will only get better).”

[StrangeLoop]

@Clayton

Now, we all know that we actually have complete control over the actions we take in response to romantic feelings.

I certainly don’t know that!

Heck, I’m not even sure what you mean by having “complete control.” Your intuitive appeal to commonsense notions of free will are, in reality, much more problematic than you make them seem.

[nirgrahamUK]

@lord robbins

But it is one thing to assume that scales can be drawn up showing the order in which an individual will prefer a series of alternatives, and to compare the arrangement of one such individual scale with another. It is quite a different thing to assume that behind such arrangements lie magnitudes which themselves can be compared. This is not an assumption which need anywhere be made in modern economic analysis, and it is an assumption which is of an entirely different kind from the assumption of individual scales of relative valuation. The theory of exchange assumes that I can compare the importance to me of bread at 6d. per loaf and 6d. spent on other alternatives presented by the opportunities of the market. And it assumes that the order of my preferences thus exhibited can be compared with the order of preferences of the baker. But it does not assume that, at any point, it is necessary to compare the satisfaction which / get from the spending of 6d. on bread with the satisfaction which the Baker gets by receiving it. That comparison is a comparison of an entirely different nature. It is a comparison which is never needed in the theory of equilibrium and which is never implied by the assumptions of that theory. It is a comparison which necessarily falls outside the scope of any positive science. To state that A’s preference stands above B’s in order of importance is entirely different from stating that A prefers n to m and B prefers n and m in a different order. It involves an element of conventional valuation. Hence it is essentially normative. It has no place in pure science.

If this is still obscure, the following considerations should be decisive. Suppose that a difference of opinion were to arise about A’s preferences. Suppose that I thought that, at certain prices, he preferred n to m, and you thought that, at the same prices, he preferred m to n. It would be easy to settle our differences in a purely scientific manner. Either we could ask A to tell us. Or, if we refused to believe that introspection " on A’s part was possible, we could expose him to the stimuli in question and observe his behaviour. Either test would be such as to provide the basis for a settlement of the difference of opinion.

But suppose that we differed about the satisfaction derived by A from an income of £1,000, and the satisfaction derived by B from an income of twice that magnitude. Asking them would provide no solution. Supposing they differed. A might urge that he had more satisfaction than B at the margin. While B might urge that, on the contrary, he had more satisfaction than A. We do not need to be slavish behaviourists to realise that here is no scientific evidence. There is no means of testing the magnitude of A’s satisfaction as compared with B’s. If we tested the state of their blood-streams, that would be a test of blood, not satisfaction. Introspection does not enable A to measure what is going on in B’s mind, nor B to measure what is going on in A’s. There is no way of comparing the satisfactions of different people. 1 Now, of course, in daily life we do continually assume that the comparison can be made. But the very diversity of the assumptions actually made at different times and in different places is evidence of their conventional nature. In Western democracies we assume for certain purposes that men in similar circumstances are capable of equal satisfactions. Just as for purposes of justice we assume equality of responsibility in similar situations as between legal subjects, so for purposes of public finance we agree to assume equality of capacity for experiencing satisfaction from equal incomes in similar circumstances as between economic subjects. But, although it may be convenient to assume this, there is no way of proving that the assumption rests on ascertainable fact. And, indeed, if the representative of some other civilisation were to assure us that we were wrong, that members of his caste (or his race) were capable of experiencing ten times as much satisfaction from given incomes as members of an inferior caste (or an “inferior” race), we could not refute him. We might poke fun at him. We might flare up with indignation, and say that his valuation was hateful, that it led to civil strife, un-happiness, unjust privilege, and so on and so forth. But we could not show that he was wrong in any objective sense, any more than we could show that we were right. And since in our hearts we do not regard different men’s satisfactions from similar means as

equally valuable, it would really be rather silly if we continued to pretend that the justification for our scheme of things was in any way scientific. It can be justified on grounds of general convenience. Or it can be justified by appeal to ultimate standards of obligation. But it cannot be justified by appeal to any kind of positive science.

Besides which as a critique of the Austrian conception the trichotimy of wanting-liking-learning is in no way superior to the Austrian understanding.

The subjective valuation that explains an act is one of expected utility, and of course under repeated conditions this can be informed by learning.

The claim that people want stuff that they don’t like, is simply misleading as it confuses time.

People want things that they expect to like, they might find they don’t like it when they get it. (or in the case of mice that get what they want and keep going out there to get it, there is no praxeological law entailing what their dopamine levels should go to and how much they should smile and laugh and proclaim their love for the ends that they routinely obtain) .

so much for launching new paradigms of understanding…

[vaduka]

i think that his thread could help rettoper very much. reading it and the references presented will help him coming to the insight that threads like “rebuting an-cap” are not the smartest thing to do.

[StrangeLoop]

@nirgrahamUK

@Lord Robbins

But suppose that we differed about the satisfaction derived by A from an income of £1,000, and the satisfaction derived by B from an income of twice that magnitude. Asking them would provide no solution. Supposing they differed. A might urge that he had more satisfaction than B at the margin. While B might urge that, on the contrary, he had more satisfaction than A. We do not need to be slavish behaviourists to realise that here is no scientific evidence. There is no means of testing the magnitude of A’s satisfaction as compared with B’s. If we tested the state of their blood-streams, that would be a test of blood, not satisfaction.

Like I said, I’m not much in the mood for a debate on this, but I want to add that these remarks from Robbins are exactly the sort that Colin Camerer challenges: Robbins is speaking from the scientific ignorance of his time, and his darkness should not be used to blow out the weak candles we are now lighting. Such aged comments as testing “the state of their blood-steams” to measure satisfaction should provoke our amusement; clearly, Robbins could not foresee the radical advancements in technology that now let us better measure psychic well-being.

Furthermore, the term “satisfaction” itself begs for explanation; did Austrians then or now provide one? Only a neuroscientific explanation will do, of course, and such an explanation would provide quantified data.

I appreciate your knowledge on these Austrian topics, but I do encourage you to actually read the paper I had linked.

[nirgrahamUK]

better measure psychic well-being.

you mean measure dopamine levels in brain fluid (big difference from blood right?) ; this is utility/value/satisfaction ?

Here we have no choice but to skate out onto thin empirical ice: how do you measure liking?

yes, thin ice

[nirgrahamUK]

also Austrian economics is not concerned with the behaviour of mice…