Utilitarianism in Economics

Introduction

• Utilitarianism is the moral ethical idea that individuals act in ways that maximise pleasure and minimise pain
• Use in Economics: consumers maximise utility over choices they make subject to resource constraints
• The Benthamist view: people form beliefs or adopt plans for action on the basis of considerations about maximising their own pleasure and minimising their own pain.
• The utilitarian argument is closely linked to arguments surrounding interpretations of probability and the degree of beliefs - arguments made by Ramsey and Keynes, which are deemed outside the scope of this post.

Main argument: utilitarianism is not bounded by the “rational” consumer - which, in my opinion, is terribly defined and an easy bandwagon argument to shit on economics.

How utility is defined, both philosophically and mathematically, is of crucial importance, as is the selection of variables that affect the description of the choices available and context for an individuals decision-making.

The Philosophical Arguments

• Bentham, Mill, Sidgwick

  • The principle of utility
  • Hedonic calculus: Bentham vs Mill

• Keynes (Keynes 1938 [1949])

• Ramsey

Utility in Standard Economics

• First year microeconomcis courses will introduce the utility-maximising consumer
• Most simple case: maximise utility subject to consumption choices

$$ \max_{x} U(x) \text{ s.t. } p^Tx \leq w $$

From which you can derive the optimal consumption bundles and Marshallian and Hicksian demand functions and do welfare analysis (see Varian for reference)

• Logit models condition on characteristics of goods (reduces n products etc)

• Social welfare theory

• Utilitarianism as the sum of individual utility

Defining Utility Beyond Consumption

• Arguing about tastes examples, Arrow lectures

Psychology of Preferences and Behavioural Economics / Bounded Rationality / Game Theory

Conclusion

• Even if we are to accept utilitarianism, in the Benthamist view, we need to be able to assess the varying degrees of probability of our beliefs’ being true and the varying strength of our desire. The arguments surrounding

References