Measurement in Economics

“You have an architect and a ditch-digger working together on a construction project. Who gets paid more, and why?” Does a tendency toward abstraction and quantification, a pretense of objectivity, obscure the character, situation and bias from which all economic and political theorems stem? Following the principle that arguments neither arise nor persist in a vacuum, that they live and die by their context and character, we can describe two sorts of response corresponding to two rather timeless worldviews, along with (...) their accompanying “mind-sets”. The degree to which these views indicate differing “kinds” in human nature, beyond which there can be no further reduction to common ground, whether conversely they simply reflect historical and economic circumstance, or to what extent they are both, will be left to the reader. One might discern in the sensibilities described some alignment along traditional epithets of “bourgeois” vs. “working class”, but this is not necessarily so. I will therefore avoid overwrought labels, but admit that such family resemblances speak to a longer historical view and a persistent problematic. (shrink)

Philosophers of well-being have tended to adopt a foundationalist approach to the question of theory and measurement, according to which theories are conceptually prior to measures. By contrast, social scientists have tended to adopt operationalist commitments, according to which they develop and refine well-being measures independently of any philosophical foundation. Unfortunately, neither approach helps us overcome the problem of coordinating between how we characterize wellbeing and how we measure it. Instead, we should adopt a coherentist approach to well-being science.

There is a widely held view on measurement inferences, that goes back to Stevens’s ([1946]) theory of measurement scales and ‘permissible statistics’. This view defends the following prohibition: you should not make inferences from averages taken with ordinal scales (versus quantitative scales: interval or ratio). This prohibition is general—it applies to all ordinal scales—and it is sometimes endorsed without qualification. Adhering to it dramatically limits the research that the social and biomedical sciences can conduct. I provide a Bayesian analysis of (...) this inferential problem, determining when measurements from ordinal scales can be used to confirm hypotheses about relative group averages. The prohibition, I conclude, cannot be upheld, even in a qualified sense. The beliefs needed to make average comparisons are less demanding than those appropriate for quantitative scales. I illustrate with the alleged paradigm ordinal scale, Mohs’ scale of mineral hardness, arguing that the literature has mischaracterized it. (shrink)

This paper is about the role of interpersonal comparisons in Harsanyi's aggregation theorem. Harsanyi interpreted his theorem to show that a broadly utilitarian theory of distribution must be true even if there are no interpersonal comparisons of well-being. How is this possible? The orthodox view is that it is not. Some argue that the interpersonal comparability of well-being is hidden in Harsanyi's premises. Others argue that it is a surprising conclusion of Harsanyi's theorem, which is not presupposed by any one (...) of the premises. I argue instead that Harsanyi was right: his theorem and its weighted-utilitarian conclusion do not require interpersonal comparisons of well-being. The key to making sense of this possibility is to treat Harsanyi's weights as dimensional constants rather than dimensionless numbers. (shrink)

This paper develops and explores a new framework for theorizing about the measurement and aggregation of well-being. It is a qualitative variation on the framework of social welfare functionals developed by Amartya Sen. In Sen’s framework, a social or overall betterness ordering is assigned to each profile of real-valued utility functions. In the qualitative framework developed here, numerical utilities are replaced by the properties they are supposed to represent. This makes it possible to characterize the measurability and interpersonal comparability of (...) well-being directly, without the use of invariance conditions, and to distinguish between real changes in well-being and merely representational changes in the unit of measurement. The qualitative framework is shown to have important implications for a range of issues in axiology and social choice theory, including the characterization of welfarism, axiomatic derivations of utilitarianism, the meaningfulness of prioritarianism, the informational requirements of variable-population ethics, the impossibility theorems of Arrow and others, and the metaphysics of value. (shrink)

Matthew Adler's Measuring Social Welfare is an introduction to the social welfare function (SWF) methodology. This essay questions some ideas at the core of the SWF methodology having to do with the relation between the SWF and the measure of well-being. The facts about individual well-being do not single out a particular scale on which well-being must be measured. As with physical quantities, there are multiple scales that can be used to represent the same information about well-being; no one scale (...) is special. Like physical laws, the SWF and its ranking of distributions cannot depend on exactly which of these scales we use. Adler and other theorists in the SWF tradition have used this idea to derive highly restrictive constraints on the shape of the SWF. These constraints rule out seemingly plausible views about distributive justice and population ethics. I argue, however, that these constraints stem from a simple but instructive mistake. The SWF should not be applied to vectors of numbers such as 1 and 2, but rather to vectors of dimensioned quantities such as 1 util and 2 utils. This seemingly pedantic suggestion turns out to have far-reaching consequences. Unlike the orthodox SWF approach, treating welfare levels as dimensioned quantities lets us distinguish between real changes in well-being and mere changes in the unit of measurement. It does this without making the SWF depend on the scale on which welfare is measured, and in a way that avoids the restrictive constraints on the shape of the SWF. (shrink)

Behavioural economics has taught us that human agents don't always display consistent, context-independent and stable preferences in their choice behaviour. Can we nevertheless do welfare economics...

Generating an account that can sidestep the disagreement among substantive theories of well-being, while at the same time still providing useful guidance for well-being public policy, would be a significant achievement. Unfortunately, the various attempts to remain agnostic regarding what constitutes well-being fail to either be an account of well-being, provide useful guidance for well-being policy, or avoid relying on a substantive well-being theory. There are no theory-free lunches in well-being policy. Instead, I propose an intermediate account, according to which (...) well-being is constituted by endorsed veridical experiences. This account refers back to theories of well-being but does so as agnostically as possible. An intermediate account of well-being is meant as a policy guiding compromise between the different theories of well-being that make claims regarding what constitutes well-being. An intermediate account does as well as can be hoped for in providing a basis for well-being policy. (shrink)

Volume 26, Issue 4, December 2019, Page 380-384.

Many economic measures are structured to reflect ethical values. I describe three attitudes towards this: maximalism, according to which we should aim to build all relevant values into measures; minimalism, according to which we should aim to keep values out of measures; and an intermediate view. I argue the intermediate view is likely correct, but existing versions are inadequate. In particular, economists have strong reason to structure measures to reflect fixed, as opposed to user-assessable, values. This implies that, despite disagreement (...) about precisely how to do so, economists should standardly adjust QALYs and DALYs to reflect egalitarian values. (shrink)

The notion of “worth” and “value” throughout human history was only partly dependent on economic reasons. Arrangements about what is considered an equivalent value/measure of wealth are the result of complex interdependencies of economic, social and cultural factors. For thousands of years people have used precious metals as universal equivalent and main measure of wealth; full-value metal money was, in fact, only reinforced by the authority of state (ruler) evidence of presence certain amount of precious metal. The rejection of valuable (...) coins and the provision of banknotes with precious metals (that is, the rejection of the gold and the silver standard) led to the fact that the circulating money signs in the society ceased to denote a concrete value, becoming an abstraction, putting the population in dependence on state’s monetary policy and financial stability of national economy. Bitcoin and its numerous alternatives arose as a response to the challenge of informatization, globalization and individualization of economic activity. This is an attempt to escape from control of state structures that are inclined to abuse their right to issue banknotes and to voluntaristic methods of managing the economy. To some extent, the cryptocurrencies reflect the nostalgia of market participants on the gold standard, which is surprisingly transformed into a complete denial of the materiality (including the metal substance) of money. This situation stimulates the search for new models for designation the equivalent value in the information society. (shrink)

We reexamine some of the classic problems connected with the use of cardinal utility functions in decision theory, and discuss Patrick Suppes's contributions to this field in light of a reinterpretation we propose for these problems. We analytically decompose the doctrine of ordinalism, which only accepts ordinal utility functions, and distinguish between several doctrines of cardinalism, depending on what components of ordinalism they specifically reject. We identify Suppes's doctrine with the major deviation from ordinalism that conceives of utility functions as (...) representing preference differences, while being non- etheless empirically related to choices. We highlight the originality, promises and limits of this choice-based cardinalism. (shrink)

Policy-makers sometimes aim to improve well-being as a policy goal, but to do this they need some way to measure well-being. Instead of relying on potentially problematic theories of well-being to justify their choice of well-being measure, Daniel Hausman proposes that policy-makers can sometimes rely on preference-based measures as evidence for well-being. I claim that Hausman’s evidential account does not justify the use of any one measure more than it justifies the use of any other measure. This leaves us at (...) a loss as to which policy should be chosen in the non-trivial cases for which there is substantial disagreement between the different measures in their assessment of policy. (shrink)

review of Ruth Chang's collection in which I argue that the apparent agreements between the authors disguise underlying important differences.

review of two similar collections on well-being.

Benefit/cost analysis is a technique for evaluating programs, procedures, and actions; it is not a moral theory. There is significant controversy over the moral justification of benefit/cost analysis. When a procedure for evaluating social policy is challenged on moral grounds, defenders frequently seek a justification by construing the procedure as the practical embodiment of a correct moral theory. This has the apparent advantage of avoiding difficult empirical questions concerning such matters as the consequences of using the procedure. So, for example, (...) defenders of benefit/cost analysis are frequently tempted to argue that this procedure just is the calculation of moral Tightness – perhaps that what it means for an action to be morally right is just for it to have the best benefit-to-cost ratio given the accounts of “benefit” and “cost” that BCA employs. They suggest, in defense of BCA, that they have found the moral calculus – Bentham's “unabashed arithmetic of morals.” To defend BCA in this manner is to commit oneself to one member of a family of moral theories and, also, to the view that if a procedure is the direct implementation of a correct moral theory, then it is a justified procedure. Neither of these commitments is desirable, and so the temptation to justify BCA by direct appeal to a B/C moral theory should be resisted; it constitutes an unwarranted short cut to moral foundations – in this case, an unsound foundation. Critics of BCA are quick to point out the flaws of B/C moral theories, and to conclude that these undermine the justification of BCA. But the failure to justify BCA by a direct appeal to B/C moral theory does not show that the technique is unjustified. There is hope for BCA, even if it does not lie with B/C moral theory. (shrink)