Over at Cosmic Variance, physicist Sean Carroll offers some admittedly uninformed speculation about utility theory and economics, saying
Anyone who actually knows something about economics is welcome to chime in to explain why all this is crazy (very possible), or perfectly well-known to all working economists (more likely), or good stuff that they will steal for their next paper (least likely). The freedom to speculate is what blogs are all about.
I didn’t notice anything crazy but there’s a fair bit that’s well-known. For example, Carroll observes that utility is generally not additive across commodities, and that some goods are likely to be more closely related than others. That’s textbook stuff, covered by the basic concepts of complementarity and substitutability.
This is a more interesting and significant point
But Iâ€™d like to argue something a bit different â€” not simply that people donâ€™t behave rationally, but that â€œrationalâ€? and â€œirrationalâ€? arenâ€™t necessarily useful terms in which to think about behavior. After all, any kind of deterministic* behavior â€” faced with equivalent circumstances, a certain person will always act the same way â€” can be modeled as the maximization of some function. But it might not be helpful to think of that function as utility, or as the act of maximizing it as the manifestation of rationality.
I can only agree. But economists and (even more, I think) political scientists in the “rational choice” tradition regularly get themselves tied up in all sorts of knots about this, switching between the trivial notion of maximising a function and substantive claims in which rationality is frequently equated with egoism. Joseph Butler demolished this kind of reasoning nearly 300 years ago, but it keeps on popping up.
* This qualification isn’t necessary, and Carroll notes later on that choices are often stochastic. The resulting probability distributions still maximise an appropriately defined function.