Ordinal Preference (MES)

Economics Economics Questions
1

I’ve finally gotten around to reading Man, Economy, and State by Rothbard and I’m reading the accompanying study guide written by Robert Murphy in order to better grasp the concepts (even though Rothbard lays them out fairly simply, I have a tendency to have a short attention span, zone out for about 15 seconds, and then snap back into reality and think to myself, “wow what did I just read?”).

I was reviewing the questions posted at the end of the first chapter, and I was a bit confused. Rothbard views value scales as being ordinal and not cardinal, so obviously you can’t like something literally “10 times” more than something else because the units to measure value are highly subjective and messy. So this was the question Murphy posed:

Suppose someone says, “I like steak more than burgers, and I like burgers more than hot dogs, but my preference for steak over burgers is definitely stronger than my preference for burgers over hot dogs.” What do you think Rothbard would say about this statement? (pp. 18–19)

I assume this question is tailored to highlight the fact that Rothbard believes that differences in how much you value something is nonsensical. But it seems to me that this is a valid statement in the context of ordinal preferences. You could love steak, somewhat enjoy burgers, and merely dislike hot dogs. If you have a theoretical scale where steak is #2 on your food list, burgers are #76, and hot dogs are #77, then it seems like this is a reasonable statement. When you consider the option between a steak and a burger, the choice is immediately obvious because the value that you have for each product is not similar whereas if the option were between burgers and hot dogs, the choice is noticably less obvious.

Am I missing something? Maybe Murphy is just making a one-two-three list and didn’t mention it in the question.

EDIT: I messed up the food items in the paragraph after Murphy’s question, it’s fixed now

2

I recall Rothbard answering that exact question in an earlier section in the book (I read up to about the end of Chapter 6 so far)… but I can’t seem to find the paragraph where I read it. After a quick search though, on page 258, Rothbard wrote:

3

I understand what Rothbard is getting at. But I mean if you are faced with Situation A (steak or burgers), the person in question makes an easy choice. Why is the choice so easy? Well it seems that they like steak a lot more than they like burgers. If they are faced with Situation B (burgers or hot dogs), they display no obvious preference towards one or the other, mull it over, and realize that they prefer burgers to hot dogs. Now I’m not asking this person to quantify how valuable steak is over burgers or how valuable burgers are over hot dogs, but you can have a feel for the distance between their desiredness. At least that’s the way it seems to me.

4

But the concept of the “distance” between them ordinal rankings is meaningless. The only thing that matters in assessing human action is what rank the preferences are in.

Begin around page 258, Rothbard goes into much more detail on the topic.

5

This doesn’t answer your question, but I found it interesting because you created this thread only a few days after I was reading Rothbards writings on this very subject in “Toward a Reconstruction of Utility and Welfare Economics”. Actually, come to think of it I never got a chance to finish it, so he may actually get into that…have a look here.

6

@Eric080: I agree, this was exactly my feeling too. Although the steak lover couldn’t legitimately say he liked steak three times as much as he liked burgers, it does seem very reasonable for him to say that his preference for steak over burgers is greater than his preference for burgers over hot dogs.

The (hypothetical) ease or difficulty with which he’s able to make the decisions between the pairs of goods is the indicator of how much he prefers one over the other: He may choose steak over burgers without a second’s thought, but he has to deliberate for a while before choosing a burger over a hot dog.

I’d be intersted to know what Murphy’s answer is.

7

Okay, here is how I see what you’re saying:

A value scale for an individual is as follows:

  1. A
  2. B
  3. C

It is given that the magnitude of preference for A over C is X. Then we introduce B into the value scale. The magnitude of the preference for A over B will be Y. Therefore, the magnitude of preference for B over C, or Z, will be X - Y. Therefore *X>Z (*assuming Y is positive) so our preference for A over C is greater than than our preference for B over C.

The problem this reasoning is that the preference for A over C has no magnitude, so the entire argument falls apart. I hope that isn’t to rambly.

8

I like boring book X a little bit more than boring book Y, but I like fascinating interesting book Z way better than both of them.

Of course this is a valid statement. Anyone who says it is meaningless has obviously missed the boat.

So of course Rothbard would have to acknowledge it. All he is saying is that “a little bit more” and “way better” cannot be measured [yet]. No reliable way has yet been found to measure intensity of emotion. In our present state of knowledge, it is like asking how many inches taller is Justice than Humor.

Therefore, our study of economics has to be content with working with inequalities. Book Z >Book X > Book Y. Even though this does not capture all we know about this booklover, it’s the best we can do.

A corrolary of all this is that any attempts to give numbers to preferences, being based on a huge mistake [=that such numbering can be done], is going to be unreliable. Thus Rothbard’s contempt for utils.

Bryan Caplan claims this is understood by the mainstream, and that their use of utils is really a shorthand. That everything they deduce using utils can be deduced without them, in a more tedious way. Bob Murphy agrees. Sadly, I haven’t yet seen any links showing how it’s done.

9

Well put, Dave.

10

Thx, gotlucky

11

@Smiling Dave. Yes that makes sense to me.

Thus, values cannot be measured; values or utilities cannot be added, subtracted, or mul­tiplied. They can only be ranked as better or worse. A man may know that he is or will be happier or less happy, but not by “how much,” not by a measurable quantity.[17]

(Emphasis mine). This passage from Rothbard, especially the qualifier, does seem to imply that a man can know that he likes steak more than burgers by a greater margin than he likes burgers more than hotdogs.

In the study group yesterday it was interesting to notice that some of the readers had another objection to the claim this hypothetical steak-lover is making. The question again was:

Suppose someone says, “I like steak more than burgers, and I like burgers more than hot dogs, but my preference for steak over burgers is definitely stronger than my preference for burgers over hot dogs.” What do you think Rothbard would say about this statement? (pp. 18–19)

They noticed that the person is expressing his value scale for entire classes of goods, he’s not considering concrete quantities/units. So on these grounds Rothbard would likely say that the claim is meaningless anyway, since ‘steak in general’ cannot legitimately be ranked in comparison to ‘burgers in general’.

Looks like there was some tricky misdirection built into this question!

12

Ah, nice!

13

Like I said above, the main point your argument rests on is that utility is quantifiable, but we simply cannot measure it and therefore we should just assumeit’s ordinal for the sake of practicality. I would claim, on the other hand, that it is nonsensical, from a praxeological point of view, to talk of a quantity of utlility whether it can be feasably measured or not.

14

When I was working through MES a few years ago, I thought I came up with the way to measure “distances” between preferences: to test whether a person prefers steak over burgers more than burgers overhot dogs, just offer him to choose between a steak+hot dogs and two portions of burgers. If he picks former, then, algebraically, steak-burgers>burgers-hot dogs. Almost immediately, however, I realized that this test reveals only the preference between “packages”, not between individual goods. From that point it was a short way to recognition that comparing individual goods is an oversimplification, as the same person may prefer either A or B in different situations. People choose between (perceivable and conceivable subsets of) the whole states of the world, so to speak. I hope all this makes sense.

15

Evilsceptic,

I would claim…

And your proof is? [After all, claiming something from a praxy point of view means you have a proof for it]. Note that I don’t make a praxeological claim, but remain agnostic. I do not know if there will ever be a way of measuring intensity of emotion. I just say maybe there is, but at present we don’t have it.

Andris,

The flaw in your reasoning is that the second burger is not necessarily worth as much as the first [given that he has one already]. The ole marginal thing.

Also, some foods don’t mix. I mean a person may like pickles more than a glass of water, and a glass of milk more than a glass of water, but would prefer a glass of water to pickles and milk, because the mixture will make him feel sick.

16

Also, some foods don’t mix.

That’s why I said people choose between whole states of the world. Marginalism went only halfway - not only do not people choose between diamonds and water as classes, but they also do not choose between n-th diamond and m-th bucket of water separately from their other possessions. They choose between having everything they have (let call it X) + n-th diamond and X + m-th bucket of water. Given different X, they will choose differently. Crusoe may choose between a can opener and a corkscrew depending on whether he’s found a lot of cans of beans or bottles of wine.

17

I was just thinking of a related question. If utility is ordinal, then where does the concept of disutility come from? When thinking in cardinal terms, its easy to think of disutility as a negative number. But an ordinal ranking doesn’t make it so obvious. I could rank the potential activities for tomorrow as follows:

  1. Have sex

  2. Go swimming

  3. Go to work

  4. Have a root canal

But this doesn’t tell us that 1 and 2 are utilities and 3 and 4 are disutilities. Obviously, disutility is an important concept in Austrian economics (see the section of Human Action on the disutility of labor, for example). So how do we determine it?

18

Good to see you you widening your horizons, FOTH.

Even with an ordinal ranking it is possible. To choose a concrete instance, let us say A<B if a person would rather have B than A, given he could only have one of them. We could then order everythig in the universe in a great chain, A<B<C<D etc. We find the thing that has the highest letter that a person actually doesn’t like, but would prefer it to anything of lower letter in the chain. Anything from that letter and lower is siad to have disutility.

In your example, we would have Root Canal<Work < Swimming< Sex.The highest thing on the chain he doesn’t like would be Work. We then say that anything from Work and to the left of the chain has disutility.

19

But this doesn’t tell us that 1 and 2 are utilities and 3 and 4 are disutilities

Why should it? My reading of HA is that disutility is just a decrease of utility; in other words, replacement of a more preferred by a less preferred. It is NOT a property of a good or a need. It is a property of change between the states of the world - replacing 2 by 3 increases disutility, but so does replacing 1 by 2.

20

Andris,

What have you to say about this line from Mises Made Easy:

Disutility of labor. The discomfort, uneasiness, inconvenience or pain inherent in human effort. Because of this quality men regard labor as a burden and prefer leisure to toil or labor. HA. 65,131-38,611-17.

Here are the quotes from HA she cites:

The disutility of labor is not of a categorial and aprioristic character. We can without contradiction think of a world in which labor does not cause uneasiness, and we can depict the state of affairs prevailing in such a world.[23] But the real world is conditioned by the disutility of labor. Only theorems based on the assumption that labor is a source of uneasiness are applicable for the comprehension of what is going on in this world.

Experience teaches that there is disutility of labor. But it does not teach it directly. There is no phenomenon that introduces itself as disutility of labor. There are only data of experience which are interpreted, on the ground of aprioristic knowledge, to mean that men consider leisure?–i.e., the absence of labor?–other things being equal, as a more desirable condition than the expenditure of labor. We see that men renounce advantages which they could get by working more?–that is, that they are ready to make sacrifices for the attainment of leisure. We infer from this fact that leisure is valued as a good and that labor is regarded as a burden. But for previous praxeological insight, we would never be in a position to reach this conclusion.

And:

In our actual world things are different. The expenditure of labor is deemed painful. Not to work is considered a state of affairs more satisfactory than working. Leisure is, other things being equal, preferred to travail. People work only when they value the return of labor higher than the decrease in satisfaction brought about by the curtailment of leisure. To work involves disutility.

Psychology and physiology may try to explain this fact. There is no need for praxeology to investigate whether or not they can succeed in such endeavors. For praxeology it is a datum that men are eager to enjoy leisure and therefore look upon their own capacity to bring about effects with feelings different from those with which they look upon the capacity of material factors of production. Man in considering an expenditure of his own labor investigates not only whether there is no more desirable end for the employment of the quantity of labor in question, but no less whether it would not be more desirable to abstain from any further expenditure of labor. We can express this fact also in calling the attainment of leisure an end of purposeful activity, or an economic good of the first order. In employing this somewhat sophisticated terminology, we must view leisure as any other economic good from the aspect of marginal utility. We must conclude that the first unit of leisure satisfies a desire more urgently felt than the second one, the second one a more urgent desire than the third one, and so on. Reversing this proposition, we get the statement that the disutility of labor felt by the worker increases in a greater proportion than the amount of labor expended.

Finally:

The fundamental facts affecting the supply of labor are:

1. bla bla bla

.

.

.

6. Men prefer the absence of labor, i.e., leisure, to labor, or as the economists put it: they attach disutility to labor.

The self-sufficient man who works in economic isolation for the direct satisfaction of his own needs only, stops working at the point at which he begins to value leisure, the absence of labor’s disutility, more highly than the increment in satisfaction expected from working more. Having satisfied his most urgent needs, he considers the satisfaction of the still unsatisfied needs less desirable than the satisfaction of his striving after leisure.

Bottom line, it sounds like he is saying that disutility means a negative aspect of something, meaning a property of the good called labor.