Though utility is as inherently personal as joy or shame, their [mainstream economists] textbooks suggests that ‘units of utility’ can be measured and added. (Butler 2010: 98).As utility is only assumed to be ordinal, and not cardinal, I have never understood this criticism. The only thing that matters with utility functions is that if A is preferred to B then a utility function will append a higher number to A than B. That is, if u is a utility function representing the above preference relation then u(A)=10 and u(B)=9 will do. But a utility function v where v(A)=1 and v(B)=0.1 will also do the job. Now if we assume u and v are the utility functions for two different people, the sum of u+v makes no sense at all. Thus I don’t get the point Butler is trying to make.
Sunday, 5 September 2010
A point I have never understood
Previously I made mention of Eamonn Butler’s new book Austrian Economics: A Primer. At one point Butler raises an issue I have seen raised before in some Austrian writings. He says,