I recently started reading Human Action (I found my university course in microeconomics to be close to useless) and I have a few questions, mainly that of indifference. I’ve read both Block’s and Hoppe’s response to Caplan regarding the subject which I found to be informative but they left me with more questions. If I understand Hoppe correctly we can be indifferent between means (i.e. eating the left/right bale of hay) unless the end specifically involves the left or right bale of hay, but does this mean we can be indifferent between ends as well? Would it have any bearing on Austrian economic theory (specifically the law of marginal utility)?
The Austrian position is that there is never indifference, and that the selection of any alternative always reveals a “demonstrated preference” at the time that the selection is made. In the classic case of a horse deciding between two seemingly identical bales of hay, it will supposedly select one or the other (it also has the alternatives of both or neither). It is beyond the scope of economic theory to explain why an alternative is chosen, and the individual making the choice might regret it later, but at the time that the selection is made he has revealed that he prefers the selection to any perceived alternatives by the act of making the selection.
Hmm, I disagree. I think that it is extremely unlikely for someone to be truly indifferent between two alternatives, which would require their utility to be equal, something very rare. But to say that it never happens seems a bit much. Nor do I think selecting one of several alternatives reveals a “demonstrated preference” since if we were to impose the conditions that the person has to choose one and only one of the alternatives, and they are truly indifferent, they could easily go for eenie meenie miny moe or whatever. It’s not like the hypothetical robot AI that explodes when faced with alternatives they cannot choose from.
But doesn’t indifference between ends/means pose a problem for the law of marginal utility? Since the utility from those actions is the same then it follows that the marginal utility doesn’t necessarily have to decrease with more goods.
Despite the fact that I feel I can fly, my actions(attempts) prove I am mistaken. Choosing from a homogenous good when you feel you were indifferent proves you incorrect, you actually preferred the one you chose.
when i pick a suit off the rack (shirt and trousers bundle), i set myself to choose getting a suit over other things i could be doing with my time. idemonstrate that preference. i pick between the suits, i pick that shirt and trouser bundle and not the other.
psychologically i may be indifferent as to whether i ‘prefer’ the shirt to the trousers, but this did not form a part of my valuing/ of my choosing. its not in the story. i.e the suit is the marginal unit that is relevant, submarginal things are simply irrelevant.
Suppose I have 1 units of A and that I’m interested in two ends B and C, both of which require 1 unit of A and that I’m interested in pursuing both end but at the same time indifferent between them. I use the first unit of A to pursue B, now, if I receive an additional unit of A to pursue C it should have the same value as the first unit, or am I missing something? Or perhaps it doesn’t matter since it’s highly unlikely that an individual would be indifferent between all his ends, but that might be more of a posteriori than a priori reasoning.
My understanding is that Austrians accept the existence of indifference, but point out that it can never be demonstrated in action. Thus, it exists (we aren’t behaviorists) but has nothing to do with economic analysis. The real issue here is doing things like drawing indifference curves, to which the Austrian says “every point on the curve corresponds to a point of indifference - but how do you know where to put them?”
Consider Rothbard’s response to Buridian’s ass. He says the ass has three choices - the left bale, the right bale, and starving to death. Either of the former is preferable to the latter, so there is no reason to choose the latter. Instead, he’ll choose one of the others. Now, note two things. First, as soon as he takes a step towards one, say the left, that one becomes preferable to the other, since he’s closer to it. Still, he was equidistant at the beginning. Next, suppose he goes to the left one. Consider an alternative universe in which the left was preferred from the start. Notice that without “looking inside his head” (and what do we look for in there?) we cannot tell the two apart, so for analytic purposes, there is no difference.
Now, Rothbard also had a radical position on heterogeneity of capital. For instance, if I have two sticks of butter, identical in every way that is relevant, in the refrigerator, one on top of the other, Rothbard denies (quite rightly, I think) that they are the same as capital goods, pointing out that one is easier to get to. This makes indifference hard, but not impossible.
His subsequent choices with additional units of A will tell you the value of marginal units. You can say that the second unit of A for the end of B will be worth less than the last one for B.
First, declined marginal utility should actually be called non-inclining zero-tending marginal utility. That is, the law says two things. Imagine a sequence of “fundamental units” - units capable of satisfying the highest valued end. At no point in the sequence can utility increase from one unit to the next, and the utility must approach 0 - either it reaches 0 at some point and you have no desire for more units, and then it continues to be 0 - on a free market it can never be below 0 because no one can force more units on you, or it declines towards 0. It never reaches some positive number and stays there forever, but it may remain there for some finite number of units.
So, such a situation does not contravert the law, but it does bring up, in a sideways manner, a problem with using the law in practice - the role of time. The law of diminishing marginal utility only holds for a constant preference schedule, which cannot be guaranteed analytically.
Next, recall that in this situation, the economist can see no difference between your actions and those of a person who prefers B to C, so analysis must treat them identically.
If I understand you correctly, you’re suggesting that marginal utility doesn’t necessarily have to decrease for each unit but will sooner or later reach 0 (due to either satisfying lower and lower ends on the scale of values or (even if he’s indifferent between all the actions) all ends being satisfied) or the scale of values is changed/reset. Is that correct?
Assuming a constant preference schedule, marginal utility can never increase from one unit to the next, and cannot stay constant forever, but can be constant from one unit to the next for some number of units. It doesn’t have to necessarily reach 0, it can approach 0 closer and closer without reaching 0 (for instance, after a certain point all additional units can be sold at a profit, but the amount of money coming in declines, or the marginal value of the same amount of money declines.)
The next time you have to make a decision where you think that you are indifferent, I suggest flipping a coin. When I’ve done this, I’ve always found that I prefer one alternative or the other, regardless of the result of the coin flip. However, even if I let the coin flip make my decision it still would not be an example of indifference. The preference would be demonstrated by the result of the coin flip.
I get what you’re trying to say. Indifference can exist psychologically but not when one acts, therefore as far as human action is concerned and all of economics that is built up around it, indifference is irrelevant.
I agree that given a scale of values the marginal utility can’t increase from one unit to another, this is necessarily true. We also seem to be in agreement that due to indifference the marginal utility doesn’t necessarily have to decrease from one unit to another. But I don’t see how it’s necessarily true that marginal utility can’t continually remain the same. Suppose a person is indifferent between all actions that he can use units of a good for (note that he’s not indifferent to acting, it’s just that the expected utility from every action is the same), it follows then that the marginal utility would remain the same for each and every unit. But perhaps the point of the law of marginal utility is not that marginal utility necessarily decreases but to explain phenomenon such as why diamonds fetch a higher price than water?
Does he have infinitely many possible uses? If not, then it must decline after he’s used it for every of those (finitely many) possible uses. I would maintain that he cannot have infinitely many possible uses.