This Matt Yglesias post has already made it on to my colleague Andy McLennan’s door. It’s short enough to quote in full
I’m not sure I understand why Greg Mankiw thinks economists “don’t understand tipping.” When I was learning economics, I learned that people are utility-maximers and that whenever you see some behavior that doesn’t seem explicable in purely financial terms that must be because people are deriving utility from the foregone financial advantage. Thus, as any economist could tell you, people tip because of the utility they derive from the tipping in much the way that economists can explain all aspects of human life.
Have I ever mentioned that philosophers tend to think that economics is vacuous? Which isn’t to say that you shouldn’t listen to economists. These days, they tend to know a lot of math, and math is a very useful thing.
Given any data on any observed set of problems involving the selection of one or more choices from a set of alternatives, the observed choices can be represented as the maximisation of an appropriately specified function.
Playing straight man to Matt, that doesn’t mean utility functions are useless – the functional representation lets you do lots of math that is much harder if you try to work directly with preferences. But any competent economist knows that utility isn’t an explanation of observed choices, it’s a way of representing them. The representation is simpler if choices satisfy some minimal consistency requirements, like transitivity (if you prefer A to B and B to C then you should prefer A to C).
The only place where I routinely encounter the confusion between substantive predictions about behavior can be derived and the observation that all choices maximise some kind of utility function is among adherents of the “rational choice” school of political science. As mentioned above “rational choice”, as described here, is essentially a tautology. More importantly, perhaps (and unlike the situation with most market interactions) crucial aspects of political behavior can’t be explained in terms of rational egoistic choice. Most obviously, voluntary voting doesn’t make sense for an egoist, since the probability of being decisive is so low as to ensure that no private benefit from one outcome or the other can be worth the effort. In my experience, rational choice fans often want to explain voting by arguing (correctly) that rational choice can encompass any preferences, including altruistic or expressive preferences, then go back to claiming that rational choice models yield substantive predictions (which can only be obtained by surreptitiously disallowing any preferences except egoistic preferences).