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One of the difficulties here, as with many technical terms in economics, is that the term
is invariant while its meanings (or assumptions) vary over time. In the Anglophone
literature alone, the meaning of "utility" has varied with changing theoretical
commitments with respect to the nature of utility, where utility resides and whether
utility is measurable.
Consider, in particular,
1) Does "utility" denote a theoretical view of what is good, and, if so, what is that
view?
2) Is utility an objective property of things, or a property of an individual’s subjective
view of things?
3) Wherever it resides, in things or minds, is utility scientifically measurable? And, if
not, is welfare economics possible?
4) Are the different kinds of utility a person experiences (measurable or not)
commensurable?
The classical economists generally thought of utility as an objective property (roughly
akin to "usefulness") of things – consistent with their labor theory of value. Jeremy
Bentham originally used the term to refer the capacity of a thing to produce good, such as
benefit, well being, pleasure, happiness, etc. When applied to actions rather than things,
Bentham’s principle of utility refers to the tendency of actions to produce good. Bentham
famously viewed good in hedonic terms, as the balance of pleasure over pain; he was
committed to the scientific measurement of utility, and regarded all utilities as
commensurable: pushpin is as good as Pushkin.
1) Yes, there is a theoretical view of what is good,
2) utility resides in things,
3) utility is potentially measurable, and
4) different kinds are commensurable.
By the late 19th century "utility" had come to be identified not with the tendency of an
object or an action to produce good, but with the good itself. Thus a person's utility is
not her usefulness in promoting good around her, but her own good.
1) Yes, there is still a theoretical view of what is good, but
2) utility now resides in minds.
3) Utility is potentially measurable, but, for some,
4) different kinds may not be fully commensurable, as with J.S. Mill’s utilitarian
apostasy.
20th-century rational-choice theory uses "utility" as a name for a mathematical function
that represents a single, complete, transitive ordering of preferences over consumption
bundles. The term "utility" does no analytical work -- "preference function" would be more
precise -- and is, in fact, confusing in that when the function is maximized, the consumer
is said to be maximizing utility, as if utility were some quantity of well being,
pleasure, happiness, etc. But consumers don't chose x over y because U(x) > U(y), that
is, because more good is produced by x than by y. It's the reverse. A utility function is
chosen because x is preferred to y -- the preferences are the analytical primitives.
Thus,
1) No, modern utility theory eschews a view of what is good, save for the (mostly
implicit) idea that it is good to satisfy one's preferences, i.e., it is good to get what
you prefer. (This last point introduces another potential confusion, the conflation of
satisfying preferences -- getting what you want -- with the idea that utility should seen
as a synonym for satisfaction).
2) Utility resides in minds;
3) utility is not measurable, which makes policy (if not voluntary trade) problematic, but
4) different kinds of utility are presumed commensurable, at least in the standard theory
that assumes a single (and complete) ordering of preferences.
P.S. Expected utility theory (choice under risk) of the VN-M variety manages to partly
reintroduce (or at least smuggle back in) the cardinality that modern utility theory had
sought to banish. Unlike choice under certainty, we can express the ratio of EU(x) and
EU(y) numerically, producing a magnitude that at least implies some quantity of good.
That’s quite a semantic journey for one term: from the usefulness of things, as measured
by their ability to produce good, to the good that things produce, to the name of a
maximand in a theory that disavows any concern with good.
(Many of these ideas can be found in John Broome, Utility Economics and Philosophy)
Thomas (Tim) Leonard
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