“Utility,” in plain English, means usefulness. In Australia, a ute is a useful vehicle. Jeremy Bentham specialized the meaning to a particular sort of usefulness. “By utility,” he said, “is meant that property in any object, whereby it tends to produce benefit, advantage, pleasure, good, or happiness or to prevent the happening of mischief, pain, evil, or unhappiness to the party whose interest is considered”. The “principle of utility” is the principle that actions are to be judged by their usefulness (...) in this sense: their tendency to produce benefit, advantage, pleasure, good, or happiness. When John Stuart Mill spoke of the “perfectly just conception of Utility or Happiness, considered as the directive rule of human conduct,” he was using “Utility” as a short name for this principle. “The greatest happiness principle” was another name for it. People who subscribed to this principle came to be known as utilitarians. (shrink)

We expound an economic explanation of the nature, causes, and effects of moral conventions. We show, first, that systems of moral rules lead to Pareto-efficiency; second, that the efficiency they induce may be interpreted as the outcome of an exchange of courtesies; third, and finally, that moral exchange takes place whenever the costs of transaction are sufficiently low. We also explain various phenomena, including the diversity of moral rules in time and space. Finally, we give sufficient conditions for universal moral (...) rules to emerge in a sequence of agreements involving two agents only at a time. (shrink)

Rational choice theory enjoys unprecedented popularity and influence in the behavioral and social sciences, but it generates intractable problems when applied to socially interactive decisions. In individual decisions, instrumental rationality is defined in terms of expected utility maximization. This becomes problematic in interactive decisions, when individuals have only partial control over the outcomes, because expected utility maximization is undefined in the absence of assumptions about how the other participants will behave. Game theory therefore incorporates not only rationality but also common (...) knowledge assumptions, enabling players to anticipate their co-players' strategies. Under these assumptions, disparate anomalies emerge. Instrumental rationality, conventionally interpreted, fails to explain intuitively obvious features of human interaction, yields predictions starkly at variance with experimental findings, and breaks down completely in certain cases. In particular, focal point selection in pure coordination games is inexplicable, though it is easily achieved in practice; the intuitively compelling payoff-dominance principle lacks rational justification; rationality in social dilemmas is self-defeating; a key solution concept for cooperative coalition games is frequently inapplicable; and rational choice in certain sequential games generates contradictions. In experiments, human players behave more cooperatively and receive higher payoffs than strict rationality would permit. Orthodox conceptions of rationality are evidently internally deficient and inadequate for explaining human interaction. Psychological game theory, based on nonstandard assumptions, is required to solve these problems, and some suggestions along these lines have already been put forward. Key Words: backward induction; Centipede game; common knowledge; cooperation; epistemic reasoning; game theory; payoff dominance; pure coordination game; rational choice theory; social dilemma. (shrink)

Francis Ysidro Edgeworth’s unduly neglected monograph New and Old Methods of Ethics (1877) advances a highly sophisticated and mathematized account of social well-being in the utilitarian tradition of his 19th-century contemporaries. This article illustrates how his usage of the ‘calculus of variations’ was combined with findings from empirical psychology and economic theory to construct a consequentialist axiological framework. A conclusion is drawn that Edgeworth is a methodological predecessor to several important methods, ideas, and issues that continue to be discussed in (...) contemporary social well-being studies. (shrink)

The history of economic thought witnessed several prominent economists who took seriously models and concepts in physics for the elucidation and prediction of economic phenomena. Econophysics is an emerging discipline at the intersection of heterodox economics and the physics of complex systems, with practitioners typically engaged in two overlapping but distinct methodological programs. The first is to export mathematical methods used in physics for the purposes of studying economic phenomena. The second is to export mechanisms in physics into economics. A (...) conclusion is drawn that physics transfer is often justified at the level of mathematical transfer but unjustified at the level of mechanistic transfer. (shrink)

There is a striking contrast between the significance of Harold Hotelling’s contribution to industrial economics and the fact that his location model was invalid, unrealistic and non-robust. It is difficult to make sense of the explanatory value of Hotelling’s model based on philosophical accounts that emphasize logical validity, representational adequacy, and robustness as determinants of explanatory value. However, these accounts are misleading because they overlook the context within which the explanatory value added of a model is apprehensible. We present Hotelling’s (...) model in its historical context and show why it is an important and explanatory model despite its apparent deficiencies. (shrink)

In economics, thought experiments are frequently justified by the difficulty of conducting controlled experiments. They serve several functions, such as establishing causal facts, isolating tendencies, and allowing inferences from models to reality. In this paper, I argue that thought experiments served a further function in economics: facilitating the quantitative definition and measurement of the theoretical concept of utility, thereby bridging the gap between theory and statistical data. I support my argument by a case study, the “hypothetical experiments” of the Norwegian (...) economist Ragnar Frisch (1895-1973). Frisch aimed to eliminate introspection and a subjective concept of utility from economic reasoning. At the same time, he sought behavioral foundations for economic theory that enabled quantitative reasoning. By using thought experiments to justify his set of choice axioms and facilitating the operationalization of utility, Frisch circumvented the problem of observing utility via actual experiments without eliminating the concept of utility from economic theory altogether. As such, these experiments helped Frisch to empirically support the theory’s most important results, such as the laws of demand and supply, without the input of new empirical findings. I suggest that Frisch’s experiments fulfill the main characteristics of thought experiments. (shrink)

Societies need markets, so just as trustworthy professionals are needed in fields such as healthcare, law and education, modern societies need trustworthy market managers, including corporate officers and directors. But in its screening of candidates, U.S. corporate business has lagged behind fields such as medicine and law, which in the nineteenth century addressed their need for screening by upgrading professional education and establishing licensing of individual practitioners. Corporate business, by contrast, has been too tolerant of problematic executives, particularly executives of (...) a type shown by recent research in psychology to exhibit a set of personality traits including below average concern about bad effects of their actions on other people. Over-representation of this problematic type has cost corporate business the trust and respect it could earn by resting fully on a time-honored alternative foundation already espoused by many trustworthy teachers and practitioners of business. Society needs these trustworthy people of business to work together to establish screening of candidates for high level corporate positions by upgrading MBA education and establishing licensing for these positions. For reasons again based on current findings in psychology, screening candidates for the MBA could be significantly strengthened by requiring historical studies, particularly history of the corporate legal structure in the U.S. and history of the MBA itself. Upgrading the MBA and establishing correlated licensing could open the way toward corrections in the legal form of the corporation to bring it into line with hospitals, law courts and universities as places where responsible professionals pursue their callings on behalf of society. (shrink)

This essay examines the administrative state as a ubiquitous phenomenon that results in part from the mismatch of incentives. Using two dramatic episodes in the history of economics, the essay considers two types of mismatch. It then examines how economists increasingly endorsed the “general good” as a unitary goal for society, even at the expense of private hopes and desires. More than this, their procedures and models gave them warrant to design mechanisms and advocate for legislation and regulations to “fix” (...) the supposedly suboptimal choices of individuals in service to the overarching goal. The rise of New Welfare Economics dealt an additional blow to the sovereignty of individual motivations, notwithstanding that Hayek and Buchanan warned that this engineering approach allowed social goals to override individual preferences. Throughout, the argument is that it is important to recognize that people within or advising the administrative state are influenced by the same sorts of motivations as actors throughout the economy. (shrink)

There are long-standing doubts about whether data from subjective scales—for instance, self-reports of happiness—are cardinally comparable. It is unclear how to assess whether these doubts are justified without first addressing two unresolved theoretical questions: how do people interpret subjective scales? Which assumptions are required for cardinal comparability? This paper offers answers to both. It proposes an explanation for scale interpretation derived from philosophy of language and game theory. In short: conversation is a cooperative endeavour governed by various maxims (Grice 1989); (...) because subjective scales are vague and individuals want to make themselves understood, scale interpretation is a search for a focal point (Schelling 1960). A specific focal point it hypothesised; if this hypothesis is correct, subjective data will be cardinally comparable. Four individually necessary and jointly sufficient conditions for cardinal comparability are specified. The paper then argues this hypothesis can be empirically be tested, makes an initial attempt to do so using subjective well-being data, and concludes it is supported. Numerous areas for further research are identified including, at the end of the paper, how certain tests could be used to ‘correct’ subjective data if they are not cardinal. (shrink)

This paper presents considerations on altruism and prosocial behaviour formulated on the basis of some experiments with the ultimatum game. In the first part it will discuss relations between expected utility theories, the characteristics of homo oeconomicus and a modern understanding of altruism. It will focus in particular on conceptual differences, indicating that we can find more than one definition of altruism in modern literature. The second part of the text will provide an overview of selected behavioural theories of prosocial (...) behaviour. It will also present the manner in which needs, social determinants, norms, and individual psychological features affect the propensity to behave in a prosocial fashion. (shrink)

Jeremy Bentham is often interpreted as defending a satisficing, rather than maximizing, version of utilitarianism, where an act is right as long as it produces more pleasure than pain. This lack of maximization is surprising given Bentham’s maximizing slogan ‘the greatest happiness of the greatest number’. Against the satisficing interpretation, I argue that Bentham consistently defends a maximizing version of utilitarianism, where an act’s consequences are compared to those of not performing the act. I show that following this version of (...) utilitarianism requires that one realizes the greatest happiness for all affected individuals. (shrink)

This essay is part of an attempt to reconcile two extreme views in economics: the (neglected) subjective, apriorist approach and the (standard) objective, scientific (i.e., falsifiable) approach. The Austrian subjective view of value, building on Carl Menger’s theory of value, was developed into a theory of economics as being entirely an a priori theory of action. This probably finds its most extreme statement in Ludwig von Mises’ Human Action (1949). In contrast, the standard economic view has developed into making falsifiable (...) predictions about economic phenomena whereby the truth of the assumptions, especially about economic agents, is relatively unimportant: predictive fecundity is all. This finds an extreme statement in Milton Friedman’s introductory essay in his Essays in Positive Economics (1953). However, many economists fall somewhere between the two extremes, such as McKenzie and Tullock (1978). (shrink)

Although it may seem from its formalism that game theory must have sprung from the mind of John von Neumann as a corollary of his work on computers or theoretical physics, it should come as no real surprise to philosophers that game theory is the articulation of a historically developing philosophical conception of rationality in thought and action. The history of ideas about rationality is deeply contradictory at many turns. While there are theories of rationality that claim it is fundamentally (...) social and aims at understanding and molding all facets of human psychological life, game theory takes rationality to be essentially located in individuals and to concern only the means to achieve predetermined ends. Thus, there are some thinkers who have made important contributions to this history who do not appear in the story of game theory at all, among them, Plato, Kant, and Hegel. There is, however, a clear trail to follow linking theories of instrumental rationality from Aristotle to the nineteenth-century marginalist economists and ultimately to von Neumann and Morgenstern and contemporary game theorists, that historically grounds game theory as a model of rational interaction. (shrink)

Most scientific models are not physical objects, and this raises important questions. What sort of entity are models, what is truth in a model, and how do we learn about models? In this paper I argue that models share important aspects in common with literary fiction, and that therefore theories of fiction can be brought to bear on these questions. In particular, I argue that the pretence theory as developed by Walton (1990, Mimesis as make-believe: on the foundations of the (...) representational arts. Harvard University Press, Cambridge/MA) has the resources to answer these questions. I introduce this account, outline the answers that it offers, and develop a general picture of scientific modelling based on it. (shrink)

La psychologie a toujours traité le comportement et l’expérience comme étant enchâssés dans un flux temporel unidimensionnel, « le courant du comportement » dans lequel les événements et les actions occupent des intervalles de temps qui ne se chevauchent pas. Pourtant, une analyse phénoménologique révèle que la structure de nos vies est bien plus riche et intéressante. En utilisant la notion de « quasidécomposabilité » de Herbert Simon, je décris cette structure comme un assemblage d’épisodes quasi-indépendants se réalisant de façon (...) concurrente, et de nature asynchrone. Il s’agit d’une « structure profonde» des vies contrairement à la conception courante qui conçoit les vies comme « plates ». (shrink)

The fundamental postulate of sociobiology is that individuals exploit favorable environments to increase their genetic representation in the next generation. The data on fertility differentials among contemporary humans are not cotvietent with this postulate. Given the importance ofHomo sapiensas an animal species in the natural world today, these data constitute particularly challenging and interesting problem for both human sociobiology and sociobiology as a whole.The first part of this paper reviews the evidence showing an inverse relationship between reproductive fitness and “endowment” (...) in contemporary, urbanized societies. It is shown that a positive relationship is observed only for those cohorts who bore their children during a unique period of rising fertility, 1935–1960, and that these cohorts are most often cited by sociobiologists as supporting the central postulate of sociobiology. Cohorts preceding and following these show the characteristic inverse relationship between endowment and fertility. The second section reviews the existing so-ciobiological models of this inverse relationship, namely, those of Barkow, Burley, and Irons, as well as more informal responses among sociobiologists to the persistent violation of sociobiology's central postulate, such as those of Alexander and Dawkins. The third section asks whether the goals of sociobiology, given the violation of its fundamental postulate by contemporary human societies, might not be better thought of as applied rather than descriptive, with respect to these societies. A proper answer to this question begins with the measurement of the pace and direction of natural selection within modern human populations, as compared to other sources of change. The vast preponderance of the shifts in human trait distributions, including the IQ distribution, appears to be due to environmental rather than genetic change. However, there remains the question of just how elastic these distributions are in the absence of reinforcing genetic change. (shrink)

The various behavioral disciplines model human behavior in distinct and incompatible ways. Yet, recent theoretical and empirical developments have created the conditions for rendering coherent the areas of overlap of the various behavioral disciplines. The analytical tools deployed in this task incorporate core principles from several behavioral disciplines. The proposed framework recognizes evolutionary theory, covering both genetic and cultural evolution, as the integrating principle of behavioral science. Moreover, if decision theory and game theory are broadened to encompass other-regarding preferences, they (...) become capable of modeling all aspects of decision making, including those normally considered “psychological,” “sociological,” or “anthropological.” The mind as a decision-making organ then becomes the organizing principle of psychology. (Published Online April 27 2007) Key Words: behavioral game theory; behavioral science; evolutionary theory; experimental psychology; gene-culture coevolution; rational actor model; socialization. (shrink)

Suppose you want to do as much good as possible. What should you do? According to members of the effective altruism movement—which has produced much of the thinking on this issue and counts several moral philosophers as its key protagonists—we should prioritise among the world’s problems by assessing their scale, solvability, and neglectedness. Once we’ve done this, the three top priorities, not necessarily in this order, are (1) aiding the world’s poorest people by providing life-saving medical treatments or alleviating poverty (...) itself, (2) preventing global catastrophic risks, such as those posed by nuclear war or rogue artificial intelligence, and (3) ending factory farming. These claims are both plausible and striking. If correct, they should prompt a stark revision of how we approach our altruistic activities. However, the project of determining how to do the most good—as opposed to say, whether we should do the most good—has only recently, within the last ten years, become the subject of serious academic attention. Many key claims have not yet been carefully scrutinised. This is a cause for concern: are effective altruists doing good badly? In this thesis, I critique and develop some of the latest claims about how individuals can do the most good. I do this in three areas: the value of saving lives (preventing premature deaths), how best to improve lives (making people happier during their lives), and cause prioritisation methodology (frameworks for determining which problems are the highest priorities). In each case, I raise novel theoretical considerations that, when incorporated, change the analysis. Roughly speaking, my main conclusions are (1) saving lives is not as straightforwardly good we tend to suppose, may not be good at all, and is not clearly a priority; (2) happiness can be measured through self-reports and, based on the self-reported evidence, treating mental health stands out as an overlooked problem that may be an even more cost-effective way to improve lives than alleviating poverty; (3) the cause prioritisation methodology proposed by effective altruists needs to be moderately reconceptualised and, when it is, it turns out it is not as illuminating a tool as we might have thought and hoped. (shrink)

The Nash-Harsanyi theory of bargaining is usually taken as the correct theory of rational bargaining, and, as such, as the correct theory for the basic political contract for a society. It grafts a theory of cooperation to a base that essentially articulates the perspective of non-cooperative interaction. The resultant theory is supposed make clear how rational bargaining can fully realize the mutual gains that cooperation can make possible. However, its underlying commitment to the concepts of non-cooperative interaction renders this doubtful. (...) I argue for an alternative theory—the theory of Full Cooperation—that avoids this difficulty. As applied to bargaining over the basic political contract, it calls for the selection of the most egalitarian of the Strictly Pareto-Optimal outcomes. This is essentially a version of Rawls’ principle of Justice as Fairness, but it is derived, unlike Rawls’ theory, without appeal to a problematic theory of individual decision-making behind the veil of ignorance. It also provides an alternative basis for what Hart calls the Principle of Mutual Restrictions, and what Rawls’ calls the Duty of Fair Play. (shrink)

Modelling became one of the primary tools of economic research in the 20th century and economists understand their mathematical models as giving some kind of representation of the economic world, one adequate enough for the purpose of reasoning about that world. But when we look at examples of how non-analogical models were first built in economics, both the process of making representations and aspects of the representing relation remain opaque. Like early astronomers, economists have to imagine how the hidden parts (...) of their world are arranged and to make images, that is, create models, to represent how they work. The case of the Edgeworth Box, a widely used model in 20th century economics, provides a good example to explore the role of imagination and images in the process of making representations of the economy. (shrink)

The relation between ethics and social science is often conceived as complementary, both disciplines cooperating in the solution of concrete moral problems. Against this, the paper argues that not only applied ethics but even certain parts of general ethics have to incorporate sociological and psychological data and theories from the start. Applied ethics depends on social science in order to asses the impact of its own principles on the concrete realities which these principles are to regulate as well as in (...) order to propose practice rules suited to adapt these principles to their respective contexts of application. Examples from medical ethics (embryo research) and ecological ethics (Leopold's land ethic) illustrate both the contingence of practice rules in relation to their underlying basic principles and the corresponding need for a co-operation between philosophy and empirical disciplines in judging their functional merits and demerits. In conclusion, the relevance of empirical hypotheses even for some of the perennial problems of ethics is shown by clarifying the role played by empirical theories in the controversies about the ethical differentiation between positive and negative responsibility and the relation between utility maximisation and (seemingly) independent criteria of distributive justice in the context of social distributions. (shrink)

To study animal welfare empirically we need an objective basis for deciding when an animal is suffering. Suffering includes a wide range ofunpleasant emotional states such as fear, boredom, pain, and hunger. Suffering has evolved as a mechanism for avoiding sources ofdanger and threats to fitness. Captive animals often suffer in situations in which they are prevented from doing something that they are highly motivated to do. The an animal is prepared to pay to attain or to escape a situation (...) is an index ofhow the animal about that situation. Withholding conditions or commodities for which an animal shows (i.e., for which it continues to work despite increasing costs) is very likely to cause suffering. In designing environments for animals in zoos, farms, and laboratories, priority should be given to features for which animals show inelastic demand. The care ofanimals can thereby be based on an objective, animal-centered assessment of their needs. (shrink)

In a recent article in this journal, Duijf claims to have proved that team reasoning can be viewed as a payoff transformation. His formalization mimics team reasoning but ignores its essential agency switch. The possibility of such a payoff transformation was never in doubt, does not imply that team reasoning can be viewed as a payoff transformation, and makes no sense in a game in which payoffs represent players’ utilities. A theorem is proved here that a simpler and more intuitive (...) payoff transformation can mimic any theory that predicts what strategies players will choose in a well-defined game. (shrink)

In the eyes of its practitioners, economics is both a deductive science and an empirical science. The starting point of its deductions might be thought of as first principles. But what is the status of such principles? The tension between foundationalism, the idea that there are necessary and secure first principles for economic inquiry, and fallibilism, the idea that no belief can be certified as true beyond the possibility of doubt, is explored. Empirical disciplines require some sort of falsifiability. Yet, (...) empirical inquiries also require a starting place—if not a necessarily true one, at least an indubitable one, that is, one that is not actually doubted. Indubitability appears to have necessary consequences, undercutting fallibilism, while fallibilism threatens confidence in the de facto first principles that begin inquiry. This tension is examined in three well-known attempts to define economics and its method: John Stuart Mill’s economics as the science of wealth, Lionel Robbins’s economics as constrained optimization; and George Stigler and Becker’s attempt to reformulate neoclassical economics to square empiricism with Robbins’ deductivism. (shrink)

This study addresses a fundamental concern of research on economic ethics by examining the values of economics. While other studies have linked the study of economics to the adoption of rational economic behavior, this study goes one level deeper, investigating the values that underpin neoclassical economics and whether they are transmitted to students. We find that the study of economics is associated with an increase in hedonism and power values, a decrease self-direction value, and possibly a decrease in universalism value. (...) We measure value change among economics students using a quasi-experimental research design in accordance with the methodology of research on academic socialization. We discuss the practical implications of the internalization of economic values. (shrink)

In traditional decision theory, utility is regarded as a mathematical representation of preferences to be inferred from agents hedonic experiences. Some go as far as to contend that utility is literally computed by specific neural areas and urge economists to complement or substitute their notion of utility with some neuro-psychological construct. In this paper, I distinguish three notions of utility that are frequently mentioned in debates about decision theory and examine some critical issues regarding their definition and measurability. Moreover, I (...) provide various empirical and conceptual reasons to doubt that economists should base decision theoretic analyses on some neuro-psychological notion of utility. (shrink)