If everything relevant were known, would we have preference relations- i.e. would we rank feasible options as being better, worse or as good as each other? We don't know. Suppose we did know and the answer was 'yes'. Then there is an information set containing every relevant piece of information and a truth function which maps to 'yes'. This means this set is preferable to any other set for one particular purpose. But, if so, this information must either be part of that set- in which case it is the 'supremum' whether or not there is any type of ordering- or it is something calculated by the truth function. But we have preferences over truth functions too! Thus the same problem reappears. If we know what we should choose then there is no need for any ordering of options. There is no real 'preference relation' here at all. There is simply truth and falsity with no metric defined over what separates them. Suppose the answer were 'no' or 'maybe'. Again, it is uncertain whether any preference relation obtains. Suppose you were guided by an omniscient being to always do the optimal thing and thus lived a charmed life, you would never have to make a choice or rank feasible alternatives.
Is the point I've made really interesting? No. It is clear that 'preference' is a Tarskian primitive. It is not defined in terms of previous concepts. It is informal and motivated by an appeal to everyday experience. Axioms place restrictions on relations between primitive notions. They can't be given a 'truth extension' (as in Alonzo Church's slingshot). There is no 'information set' which can be associated with it. Why? Tarski says- When we set out to construct a given discipline, we distinguish, first of all, a certain small group of expressions of this discipline that seem to us to be immediately understandable; the expressions in this group we call PRIMITIVE TERMS or UNDEFINED TERMS, and we employ them without explaining their meanings. At the same time we adopt the principle: not to employ any of the other expressions of the discipline under consideration, unless its meaning has first been determined with the help of primitive terms and of such expressions of the discipline whose meanings have been explained previously. The sentence which determines the meaning of a term in this way is called a DEFINITION. We have just seen that if 'information set' is defined as 'everything relevant to a particular decision' we get a nonsensical result. Thus we have to reject the use of such a set. More generally, to define a set in terms of primitives, there must be an unambiguous property such that there is a unique extension available immediately- not something which may only be known 'at the end of time'- or else the property is 'intensional' or suffers from impredicativity such that here is no unique class or binary relation or preorder associated with it. This means, no disciplined, rigorous work can be done by these means.
Why did economists need a 'Tarskian primitive' for 'preference? The answer is their discipline faced a coordination problem of a historical type. Pareto had questioned the hedonic assumptions of utility theory and the mathematical extension of the 'marginal revolution' reinforced a move to 'positive economics' on the one hand and empirical research on the other. Thus 'analytical and descriptive' economics eschewed value judgments. Moreover, Arrow's theorem raised another bogeyman- that of the 'Dictator' who must exist if there were any way of arriving at at a Collective Social Choice Rule just from information about the preferences of people in the society. In other words, normative economics was not just philosophically illicit in that it appealed to the existence of something which could not be measured or made the subject of experimental science, it was also in some sense 'Dictatorial'.
Amartya Sen's family belonged to the Brahmo Samaj which had been founded by a great admirer of Bentham's Utilitarianism He himself was greatly influenced by Rabindranath Tagore who led one faction of the Samaj. Tagore's philosophy is difficult to pin down but it is noteworthy that L.E.J Brouwer and Ludwig Wittgenstein were great admirers of the sage of Santiniketan. Tagore was preoccupied by the link between 'jiva'- the finite life-soul- and the 'atman'- the infinite world-soul. Brouwer too was motivated to invent choice sequences by his musings on the Continuum hypothesis- i.e. the link that might exist between different 'sizes' of infinity.
Sen has gained fame as a champion of the normative approach to economics because he subjected Samuelson's notion of 'revealed preference' (i.e. taking 'consistent choices' to represent the individual's preferences regardless of her own internal psychological states or motivations) to what appeared to be a painstaking mathematical analysis. The question is, did Sen get the math right? Was he writing sense or nonsense? Let us look at his seminal paper- 'Behaviour and the concept of preference' which came out almost 50 years ago.
Sen begins his essay by saying that the notion of 'Revelation' is incongruously Scriptural. However Alan Gibbard came up with a 'Revelation Principle' for mechanism design about this time. This is not theological at all. It is useful for a specific purpose.
Sen says he wants 'to examine the philosophy behind the approach of revealed preference and to raise some queries about its use, and then to go on to discuss the implications of these issues for normative economics.
This is foolish. There is no philosophy behind a pragmatic tool for analyzing behavior. There is no implication of any sort for those who make value judgments if some other people, belonging to a different profession, stick only to what can be empirically verified. A Bishop might worry that Sherlock Holmes is condemning his own soul to perdition for trying to track Moriarty down using empirical clues rather than praying to God for angelic intervention. However, the fact that detectives follow empirical methods does not mean that divines must do the same thing.
The crux of the question lies in the interpretation of underlying preference from observations of behaviour.
No. A certain type of behavior is looked at- viz what is bought and how much of it is bought at a given price and for a given level of income. The assumption is made that what is consistently chosen is what the chooser deems preferable. If behavior is inconsistent, it is assumed that preferences have changed.
"The individual guinea-pig," wrote Paul Samuelson, "by his market behaviour, reveals his preference pattern-if there is such a consistent pattern." If a collection of goods y could have been bought by a certain individual within his budget when he in fact was observed to buy another collection x, it is to be presumed that he has revealed a preference for x over y. The outside observer notices that this person chose x when y was available and infers that he preferred x to y. From the point of view of introspection of the person in question, the process runs from his preference to his choice, but from the point of view of the scientific observer the arrow runs in the opposite direction: choices are observed first and preferences are then presumed from these observations. The consistency condition that Samuelson based his theory on, which has come to be known as the Weak Axiom of Revealed Preference, says that if a person reveals a preference-in the sense just defined-for x over y, then he must not also reveal a preference for y over x.
This is perfectly reasonable. We may be discussing what present to buy for our friend. I suggest a box of chocolates. You say 'come to think of it, I notice he always buys eclairs even if a superior type of chocolate is available'. Thus, we conclude he prefers eclairs and so that is what we buy him.
Sen makes the following objection to ' the somewhat surprising claim that has been frequently made that the theory of revealed preference "frees" demand theory from the concept of preference and a fortiori from the concept of utility on which traditional demand theory was based. In his pioneering paper, Samuelson argued that his object was "to develop the theory of consumer's behaviour freed from any vestigial traces of the utility concept".
Thus if we find sales of Russian Vodka has fallen we look for an explanation for why tastes (which is what preferences represent) may have changed. Perhaps people are angry with Putin for invading Ukraine.
The exact content of the statement was not altogether clear, and in pushing forward the revealed preference approach in a classic paper, Little argued that one of his main aims was to demonstrate "that a theory of consumer's demand can be based solely on consistent behaviour", adding that "the new formulation is scientifically more respectable [since] if an individual's behaviour is consistent, then it must be possible to explain that behaviour without reference to anything other than behaviour". In a similar vein, Hicks stated that "the econometric theory of demand does study human beings, but only as entities having certain patterns of market behaviour; it makes no claim, no pretence, to be able to see inside their head".
Why was this useful? The answer is that Marketing Departments needed to predict demand on the basis of what was observable rather than on the basis of phenomenology or cognitive science. The same was true of Government Departments tasked with the supply of various goods and services during the War or the period of Reconstruction.
On this interpretation the use of the word "preference" in revealed preference would appear to represent an elaborate pun.
How so? The thing is a tautology which equates what people do with what they preferred to do. This permits us to looking at what they do in aggregate and making predictions about it.
In saying that x is revealed preferred to y, it would not be asserted that x is preferred to y in the usual sense of the word "preferred".
Yes it would if there was no budget constraint. In other words if both were free of cost and x was chosen over y, it must be the case that x was preferable.
The usual sense of the word 'preferred' is 'intensional'. In logic this is said of a predicate incapable of explanation solely in terms of the set of objects to which it is applicable; it requires an explanation in terms of meaning or understanding. However, an intensional predicate can't be used to define a set unless there is a unique property which can unambiguously identify only and all elements of the set. The problem here is that the natural language interpretation of 'preferred' has many shades of meaning. It may mean what you do. It may mean what you wish you would want to do. It may mean something which is wholly determined by biology or society but which you go along with unquestioningly. It may mean the reverse.
Revealed Preference theory uses a narrow and unambiguous rule- viz what was available to choose and what was actually chosen- to define a set of elements. It then has an axiom to create an 'ordering' of those elements and thus to define a mathematical space with a metric- i.e. a measure of distance of a 'natural' or non-arbitrary type. Provided the rules are scrupulously observed, this should allow inference to proceed in a useful manner. Where what is observed conflicts with what is inferred, it becomes worthwhile to carefully look at why this is the case. In this way knowledge expands in a systematic manner.
A redefinition of the expression "preference" is, of course, possible, but it is then legitimate to ask what does "consistency" of behaviour stand for and on what basis are the required consistency conditions chosen.
Consistency means that under the same conditions, behavior is the same. When conditions change, behavior changes in a predictable way. Revealed preference has a self-evident consistency condition. The same things are chosen or choice is predictable unless preferences change.
The alleged inconsistency between (i) choosing x when y is available and (ii) choosing y when x is available, would seem to have something to do with the surmise about the person's preference underlying his choices.
That's why we would say his preferences have changed. We then look around for a reason for this- e.g. Putin invading Ukraine causing people to stop buying Russian Vodka.
Preferring x to y is inconsistent with preferring y to x,
Not necessarily. We order a different dish for dinner from what we had for lunch. However, in aggregate, by the 'law of large numbers', we would see consistency in demand for different dishes. However tastes may change. I don't suppose there is much demand now for Russian dishes- unless they are cleverly relabeled as Ukrainian. Sainsbury no longer sells Chicken Kiev. It has Chicken Kyiv.
but if it is asserted that choice has nothing to do with preference, then choosing x rather than y in one case and y rather than x in another need not necessarily be at all inconsistent.
No such assertion is made. What people choose is what they prefer subject to a budget constraint. Tastes may change. That is a separate matter.
What makes them look inconsistent is precisely the peep into the head of the consumer, the avoidance of which is alleged to be the aim of the revealed preference approach.
There is no such 'peeping'. A useful assumption has been made and econometric work can proceed on that basis. No doubt there might be some individual inconsistency but it cancels out thanks to the Law of large numbers.
It could, however, be argued that what was at issue was not really whether the axiom of revealed preference represented a requirement of consistency,
consistency is assumed and where it is violated we look around for a reason why tastes might have changed.
but whether as a hypothesis it was empirically verified.
An axiom is not a hypothesis. It is something used to construct mathematical objects.
This line would not take one very far either. Consider the simplest situation of one consumer facing two divisible commodities-the case that figures on blackboards in every Economics Department in the world, and would have, I imagine, adorned the magnificent glass doors of the St. Clement's Building but for the greater deference shown by our architects to the even more classic demand-and-supply intersection. Even in this rudimentary case, the set of possible choice situations for any individual is infinite-indeed uncountable.
This is not the case. Why? Firstly, commodities are not infinitely divisible. Secondly resources are scarce.
To check whether the Weak Axiom holds for the entire field of all market choices, we have to observe the person's choices under infinitely many price-income configurations.
Which mathematician checks an axiom against all possible cases? None at all. Why should we do so for the Weak Axiom? The fact is, it is a tautology. Any violation is easily explained by Tastes having changed.
In contrast, the number of actual choices that can be studied is extremely limited. Not only is the ratio of observations to potential choices equal to zero,
No. If resources are scarce potential choices don't go to infinity. Anyway, we define 'observation' as what was chosen. We don't know anything about 'potential choices'. People may only compare the best and the next best alternative in which case the ratio is half.
but moreover the absolute number of cases investigated is also fairly small.
So what? That's how the Natural Sciences work.
Comparisons have to be made within a fairly short time to avoid taste change,
That is not a requirement of the theory. Samuelson wasn't saying anything about what was going on in anybody's head.
but the time elapsed must also be sufficiently long so that the mutton purchased last time is not still in the larder, making the choices non-comparable.
Irrelevant because of the Law of Large Numbers.
With durable goods the problem is quite vicious.
Nonsense! Guys working for Sony or LG or whatever have no great difficulty in this respect though, no doubt, the number crunching is laborious. The fact is the Law of Large Numbers makes things simpler and more predictable as your market size increases.
The actual number of tests carried out have, not surprisingly, been very small. Faith in the axioms of revealed preference arises, therefore, not from empirical verification, but from the intuitive reasonableness of these axioms interpreted precisely in terms of preference. In fact, the concept of taste change is itself a preference-based notion,
no. It is a heuristic. There are no 'concepts' here ;'preference' is a Tarskian primitive. It is undefined. Revealed preference is simply a term of art. It isn't a concept of a metaphysical type.
and the whole framework of revealed preference analysis of behaviour is steeped with implicit ideas about preference and psychology.
That may be but the same thing could be said of what Sen is doing here.
I would, therefore, argue that the claim of explaining "behaviour without reference to anything other than behaviour" is pure rhetoric
As is Sen's claim. Samuelson's work was useful because economists were sick and tired of being told they were 'bourgeois idealists' and represented 'capitalist' or 'patriarchal' or 'Jewish' thinking. Samuelson was saying 'guys, we are like physicists or engineers. We apply maths not metaphysics. Leave us alone to get on with doing useful stuff. '
Sen decides that he knows what goes on in Samuelson's mind better than Samuelson himself does.
The rationale of the revealed preference approach lies in this assumption of revelation and not in doing away with the notion of underlying preferences, despite occasional noises to the contrary.
This is how gaslighting works. The Professor tells you that what you really want to do is to suck his cock. The smart thing to do is to cut it off and slap him in the face with it.
So we would be justified in examining the philosophical foundations of the revealed preference approach precisely in terms of the assumption of revelation.
In which case I would be justified in examining the philosophical foundations of the Capabilities approach precisely in terms of the assumption that Sen eagerly devours dog turds. There may be no empirical evidence for this but I can see into Sen's mind. I know he received training in magic and sleight of hand from P.C Sorcar. Thus he has been able to devour dog turds incessantly with none being the wiser.
This is what I shall now go on lo do. I shall take up a relatively minor question first. The Weak Axiom of Revealed Preference is a condition of consistency of two choices only.
No. x is a bundle and y can be any other affordable bundle of goods and services.
If x is revealed preferred to y, then y should not be revealed preferred to x.
for any affordable y.
Perhaps because of this concentration on the consistency between any two choices and no more, the Weak Axiom has appeared to many to be a condition of what Hicks calls "two-term consistency".
However, any affordable y chosen against x when x is also affordable represents inconsistency. Tastes must have changed- e.g people buying Ukrainian Vodka whereas previously they had bought Russian Vodka even though the latter may be more affordable.
And it has appeared as if the other well-known requirement of consistency, viz, transitivity, lay outside its scope. Transitivity is a simple condition to state: if x is regarded as at least as good as y, and y at least as good as z, then x should be regarded as at least as good as z. In the case of preference, it implies that if x is preferred to y and y preferred to z, then it should also be the case that x is preferred to z. Since this condition involves at least three choices and since the Weak Axiom involves a requirement of consistency only over pairs of choices, it might look as if the Weak Axiom could not possibly imply transitivity.
It does not preclude it. However, by the time Sen was writing this, mainframe computers had entered Government offices and those of large corporations. Econometrics had moved on. Nobody really cared about some silly axiom or the other. You sat through this stuff at College but made your living by 'data mining' and developing heuristic models or just plain 'chartism'- i.e. looking at trends and extrapolating them.
This has indeed been taken to be so in much of the literature on the subject, and additional conditions for transitivity have been sought. In a very limited sense this point about transitivity is indeed correct. But it can be shown that the limited sense in which this is true ignores precisely the methodological point concerning the interpretation of revealed preference theory which I discussed a few minutes ago.
But this 'methodology' wasn't doing any useful work in the real world. A few pedants had to teach this stuff to undergraduates but their shibboleths and methodenstreit changed nothing in the larger scheme of things. If suddenly Friedmanite stock went up while Keynesian stock fell, it was not because the former was more 'positive'. It was because the A-rabs had jacked up the price of oil and the West was experiencing stagflation.
The philosophical issue involved is, therefore, worth discussing in the light of the logical problems raised by revealed preference theory. Consider a case in which we find a consumer choosing x and rejecting y, and another in which he is found to choose y and reject z. So he has revealed a preference for x over y and also for y over z. Of course, even under the assumption of transitivity of the underlying preference, the person is not obliged to reveal a preference for x over z since such a choice may not in fact arise in his uneventful life.
Suppose x was unavailable when the guy chose z and that z was available and affordable when x was chosen, then the guy prefers x to z. If he suddenly chooses z then his tastes must have changed- e.g. buying Ukrainian Vodka whereas previously he bought Russian or, if Russian Vodka was unavailable, settled for Polish Vodka.
But suppose we could offer this person choices over any combination of alternatives and could thus ensure that he had to choose between x and z. Then clearly it would be required by transitivity that he must choose x and reject z. Is this guaranteed by the Weak Axiom? The answer is: clearly yes. To understand why this is so, imagine the contrary and suppose that he did choose z instead of x. We could then offer him the choice over the set of three alternatives, x, y and z. What could this man now choose? If he chose x, which would involve rejecting z, this would violate the Weak Axiom since he had earlier rejected x and chosen z. If he chose y, which would mean that he would be rejecting x, this would also violate the Weak Axiom since he had rejected y and chosen x earlier. Finally, if he chose z, which would imply a rejection of y, he would again be running counter to the Weak Axiom since earlier he had chosen y rejecting z. So no matter what he chose out of this set of three alternatives (x, y, z), he must violate the Weak Axiom.
Which is fine because Tastes changed. There is no philosophical angle to this at all. Sen is illicitly peeking into the mind of an imaginary man and saying 'he is at an impasse'. But Samuelson set things up in such a way that we have no need to do anything so silly. The fact that you have sex with your girlfriend does not mean you are violating any Weak or Strong axiom by refusing to sodomize your Professor.
He is in this impasse only because he chose z and rejected x
This is like saying 'you had sex with your professor because I have decided that your girlfriend is actually your professor. Since I'm the professor in this class, you must, to be consistent, prefer to have sex with me.' The fact is you have sex with your g.f because she is to your taste. You don't have sex with your professor because he isn't.
after having revealed a preference for x over y and for y over z. To be able to choose in a manner consistent with the Weak Axiom of Revealed Preference, he would have to choose x faced with a choice between the two.
No he wouldn't. He could do what he liked. If this was inconsistent with previous behavior, the explanation is simply that his preferences changed.
Further, if he chose both x and z in a choice between the two, there must be inconsistency also.
No. In this theory, choice is always consistent with preferences. But preferences can change. Provided this has not happened over the time period in question, Revealed Preference theory can make useful predictions.
In a choice over (x, y, z), he could not choose z since he had chosen y rejecting z in a choice between the two. For the same reason he could not choose y since he had revealed a preference for x over y. So he would have to choose only x in the choice over x, y, z, rejecting z. But then he could not choose z in the presence of x in the choice over that pair in view of the Weak Axiom of Revealed Preference and this is a contradiction.
No. It means tastes have changed.
The Weak Axiom not only guarantees two-term consistency, it also prevents the violation of transitivity.
unless tastes change
The fact that the Axiom applies to two choices at a time does not rule out its repeated use to get the result of transitivity. Why is it then that people have looked for stronger conditions than the Weak Axiom to get transitivity or similar properties?
Because the weak axiom becomes vacuous when information on budget sets are sparse. Stronger axioms add, or impose, structure to the domain.
in the revealed preference literature, it has been customary to assume, usually implicitly, that the Weak Axiom holds only for those choices that can be observed in the market and not necessarily for other choice.
This was useful back in the Thirties and Forties when Marxists and various other types of nutters were prowling around complaining of 'Jewish' hedonism or 'bourgeois idealism' and how true Freedom could only be established if nobody could choose what they had for breakfast. If people can decide to have bacon and eggs rather than cereal and a grapefruit, they will inevitably turn into flunkeys of Fascism.
And given divisible commodities,
Sen lives in a world where you order a micron worth of bacon and a ten billion egg omlette.
the market can never offer the man under observation the choice, say, between x, y and z only.
Yes it can. Anyway, revealed preference is not restricted to open market transactions.
If these three baskets of goods were available then so should be an infinite number of other baskets that would cost no more at given market prices.
Nonsense. There are menu and inventory costs and limits to 'bulk breaking'. You can't buy half a microwave oven.
This is how in the theory of consumer's behaviour, the man can get away satisfying the Weak Axiom over all the cases in which his behaviour can be observed in the market and nevertheless harbour an intransitive preference relation.
The theory says nothing about what his mind may harbor. It merely predicts behavior and seeks to explain inconsistency by looking at why Tastes may have changed.
The moment this is recognized the question arises: why this distinction between those choices in which the person's behaviour can be observed in the market and other choices in which it cannot be?
There is no such distinction. There is nothing stopping a man from applying revealed preference theory to his own choices between imaginary objects- e.g which anime character to jerk off to.
Presumably, the argument lies in the fact that if market choices are the only observable choices,
I can observe which type of racing car I'm driving while going 'vroom vroom' and holding an imaginary steering wheel. Fuck. It's a Honda Civic. Boy am I a loser.
then the Weak Axiom can be verified only for those choices and not for others that cannot be observed in the market.
Axioms are not verified. Hypothesis are. The question is 'does Revealed Preference make good predictions?' and the answer is 'yes, in some markets but not in others'.
But as we saw earlier, the Weak Axiom cannot be verified anyway even for market choices and the case for its use lies not in verification but in its intuitive plausibility given the preference-based interpretation of choice.
No. Either the thing 'pays for itself'- enterprises use it to make better decisions- or it falls by the wayside. At one time, economists needed to convince politicians and public intellectuals that they were doing useful work similar to that of the engineer or the plumber, rather than spreading a noxious 'bourgeois' ideology. Sadly, Sen-tentious Development Econ could not pay for itself and so Sen fled to London taking with him his best friend's wife. He was writing this sort of shite to advance his own career. After all, he came from Calcutta- then considered a horrible shithole where everybody was either starving or making babies like crazy. Thus, it was pricelessly funny to have this little Brown dude lecturing rich White folks on Economics!
Consider the following- it is pure slapstick!
Treated as an axiom in the light of which consumer's choices are analysed and interpreted, rather than as a hypothesis which is up for verification, there is no case for restricting the scope of the Weak Axiom arbitrarily to budget sets only,
Free goods- e.g. which sort of imaginary racing car you want to drive while saying 'Vroom, Vroom'- feature in budget sets. But there are things which cost money which we also want and our income is limited. This may not be obvious to a starving Bengali who doesn't get that food can be bought by money you earn- as opposed to PL480 food sent to you by Uncle Sam- but it was obvious to the taxpayers of rich countries.
and in the absence of this invidious distinction, transitivity follows directly from the Weak Axiom of Revealed Preference.
Does it though? I suppose Sen could have argued that starving Bengalis had rejected the option to become well paid astronauts or shipping tycoons. Transitivity means that astronauts and shipping tycoons should learn to quietly starve to death while singing Rabindra Sangeet.
If a consumer has chosen x rejecting y in one case, chosen y rejecting z in another, and chosen z rejecting x in a third case, then he has not only violated transitivity, he must violate the Weak Axiom of Revealed Preference as well.
Which is fine because Tastes have changed. If they haven't then he couldn't have done what Sen just said.
No matter what he chooses given the choice over x, y and z, he must run counter to the Weak Axiom,
by Sen's express stipulation. But my stipulation that Sen eats only dog turds has equal truth content.
as demonstrated. The fact that he cannot be observed in a choice over (x, y, z)
by Sen's stipulation. Yet, anybody can observe himself.
makes no real difference since no matter what he chooses he must logically violate the Weak Axiom. In this sense, an observed violation of the Strong Axiom will logically imply a violation of the Weak Axiom as well.
It may be argued that Sen has been observed to eat something other than dog turds. This can be explained by his Tastes changing for an exogenous reason for a brief moment in time. Thus it remains the case that, because of transitivity, Sen only eats dog turds.
A number of other distinct axioms that have been proposed in the literature can also be shown to be equivalent once the arbitrary restrictions are removed.(If the domain of the choice function includes all pairs and triples, then these apparently different axioms turn out to be logically equivalent.)
All axiom systems can be taken to be logically equivalent in that they entail Sen only eats dog turds. It is an arbitrary restriction to argue that this is not the case. This is easily proved simply by stipulating that 'Sen eats dog turds' is a philosophical 'slingshot'- i.e. it is the truth that all true sentences designate. Alonzo Church shows how this happens on the basis of 'substitutability' and considering truth value to be an 'extensions' of sentences. However, for the reason noted in the first paragraph of this post, the result is that we can say nothing about what is truly true or what is preferable among preference relations.
I would now like to turn to the fundamental assumption of the revealed preference approach, viz, that people do reveal their underlying preferences through their actual choices. Is this a reasonable presumption?
It is useful. The alternative is to suggest that Sen wants to subsist only on a diet of dog turds even though there is no evidence at all for this proposition.
If a person chose x when y was available, it would seem reasonable to argue that he did not really regard y to be better than x. There is, of course, the problem that a person's choices may not be made after much thinking or after systematic comparisons of alternatives.
In which case they fall outside the scope of economics.
I am inclined to believe that the chair on which you are currently sitting in this room was not chosen entirely thoughtlessly, but I am not totally persuaded that you in fact did choose the particular chair you have chosen through a careful calculation of the pros and cons of sitting in each possible chair that was vacant when you came in.
Choice of chair might be interesting to a psychologist. I suppose a guy who sells chairs might find it rewarding to look at which sort of chair what sort of person choses. Young people may like pouffes or beanbags. The elderly may look for sturdy chairs with arm rests.
Even some important decisions in life seem to be taken on the basis of incomplete thinking about the possible courses of action, and the hypothesis of revealed preference, as a psychological generalization, may not be altogether convincing.
What matters is whether it holds up on the macro-scale.
I shall try to discuss one and a half other issues which seem to me to be also important. The half issue should perhaps come first. The logical property of connectedness (or completeness as it is sometimes called) of binary relations is an important characteristic to examine in the context of evaluating the fundamental assumption of revealed preference.
Why? The thing is baked into the math. It doesn't matter what the binary relation is, the mathematical properties will be the same. If there is a unique preorder then you will have an inner product space such that a canonical measure of 'distance' obtains.
Connectedness of preference requires that between any two alternatives x and y, the person in question either prefers x toy, or prefers y to x, or is indifferent between x and y.
No. If behavior is consistent then you have a connected space. If it isn't, you don't. This has numerous implications. A guy who works in marketing for white goods is not necessarily a good hire for a firm facing a very different type of consumer.
The approach of revealed preference makes considerable use of connectedness. If a person chooses x rather than y, it is presumed that he regards x to be at least as good as y,
This is Sen's assumption. It may have been Samuelson's. But it is not required by the theory. Either there is a binary relation with a unique preorder or there isn't. That's an empirical matter.
and not that may be he has no clue about what to choose and has chosen x because he had to choose something. The point can be illustrated with a variation of the classic story of Buridan's ass. This ass, as we all know, could not make up its mind between two haystacks; it liked both very much but could not decide which one was better. Being unable to choose, this dithering animal died ultimately of starvation. The dilemma of the ass is easy to understand, but it is possible that the animal would have agreed that it would have been better off by choosing either of the haystacks rather than nothing at all. Not choosing anything is also a choice, and in this case this really meant the choice of starvation. On the other hand, had it chosen either of the haystacks, it would have been presumed that the ass regarded that haystack to be at least as good as the other, which in this version of the story was not the case. The ass was in a real dilemma vis-a-vis the revealed preference approach.
Nonsense! The ass sees hay and looks around in case a predator is lurking. He sees a different bundle of hay and looks around again. However, as hunger grows his fear of predators lessens so he stops looking around and goes for the hay. An ethologist watching this would point out why a particular bundle would appear safer to the animal.
The traditional interpretation of the story is that the ass was indifferent between the two haystacks. That indifference may be a cause for dithering has often been stated. For example, Ian Little prefaced his closely reasoned attack on the concept of indifference by posing the rather thoughtful question: "How long must a person dither before he is pronounced indifferent ?"
Dithering is about regret minimization not preference. Salesmen know this. That is why they hold something in reserve to 'close' the deal. They wish to maximize 'regret' for not snapping up the offer which would be presented as 'time bound'.
But in fact there is hardly any real cause for dithering if one is really indifferent, since the loss from choosing one alternative rather than another is exactly zero. The person can choose either alternative and regret nothing in either case.
No. Regret is about Knightian Uncertainty- i.e. unknown future states of the world. If the future is bleak you will regret splurging rather than procrastinating.
This, however, is not the case if the preference relation is unconnected over this pair, i.e. if the chooser can neither say that he prefers x to y, nor y to x, nor that he is indifferent between the two. If Buridan's ass was indifferent, choosing either haystack would have been quite legitimate and would not have misled the observer armed with revealed preference theory provided the observer chose a version of the theory that permitted indifference. The real dilemma would arise if the ass had an unconnected preference.
i.e 'free-will' or else some internal method of 'tie-breaking'- e.g. mounting hunger which motivates impetuous action.
Choosing either haystack would have appeared to reveal a view that that haystack was no worse than the other, but this view the ass was unable to subscribe to since it could not decide what its preference should be.
His preference was hay. Eat one bundle and then eat the other.
By choosing either haystack it would have given a wrong signal to the revealed preference theorist since this would have implied that he regarded the chosen haystack to be at least as good as the other.
No. The revealed preference theorist is unconcerned with what might be going on in the ass's head. His preference is for hay. If he doesn't eat it he has acted inconsistently. We may ask an ethologist why this happened. The ethologist would explain it didn't actually happen. This is just a story.
There is very little doubt that Buridan's ass died for the cause of revealed preference,
No it died because some stupid philosopher was trying to make a point about free-will or something of that sort. Revealed Preference has no interest whatsoever in what might happen inside brains. Asses prefer eating hay to starving. If a particular ass acted inconsistently then economists might want to ask an expert on that type of animal why it did so.
though alas-he was not entirely successful since non-choice leading to starvation would have looked like the chosen alternative, at any rate from the point of view of mechanical use of the fundamental assumption of revealed preference.
No. It would have looked like inconsistency.
There was no way the ass could have rescued that assumption given its unconnected preference. But what if all these problems are ruled out? That is, if the person has a connected preference relation, takes his decisions deliberately after considering all alternatives, and is not swayed to and fro by the lure of advertisements. Obviously none of the problems discussed in the last few minutes will then arise.
If there is a connected preference relation then no problem can arise. If tastes change the preference relation has changed.
Will the life of the revealed preference theorist, then, be uncomplicated? I fear that it will not, and there is, it seems to me, a difficulty in some sense more fundamental than all the ones discussed so far. This problem I would like to go into now. The difficulty is seen most easily in terms of a well-known game, viz, "the Prisoners' Dilemma7',l which has cropped up frequently in economics in other contexts. The story goes something like this. Two prisoners are known to be guilty of a very serious crime, but there is not enough evidence to convict them. There is, however, sufficient evidence to convict them of a minor crime. The District Attorney-it is an American story-separates the two and tells each that they will be given the option to confess if they wish to. If both of them do confess, they will be convicted of the major crime on each other's evidence, but in view of the good behaviour shown in squealing, the District Attorney will ask for a penalty of 10 years each rather than the full penalty of 20 years. If neither confesses, each will be convicted only of the minor crime and get 2 years. If one confesses and the other does not, then the one who does confess will go free and the other will go to prison for 20 years. What should the prisoners do? It is not doubted by the game theorist that any self-respecting prisoner will begin by drawing a pay-off matrix to facilitate rational choice.
But Revealed Preference need not do so. They will just look at the outcome and decide who was or wasn't a rat. Criminals use the same theory. Snitches get stiches. However, a 'made man' can snitch on one lower down the totem pole because he can keep himself comfy in prison and also kill anyone who tries to fuck his wife. Even if this is not the case, the weaker guy knows that he must confess to anything and everything so the king-pin goes free. Jail time is a piece of cake compared to what that evil bastard will do to you and your family.
Revealed preference is consistent with what actually obtains. Low level criminals take the fall and go away for long stretches. Whitey Bulger, because he is an informer, stays free to preside over an empire of terror. On the other hand, a guy who has done a long stretch in prison will have a higher 'rep'. He can consistently inform on a lower ranked partner. This is because his 'budget set' has changed.
I do not find it difficult to believe that birds and bees and dogs and cats do reveal their preferences by their choice; it is with human beings that the proposition is not particularly persuasive. An act of choice for this social animal is, in a fundamental sense, always a social act.
but birds and bees and dogs and cats are also social creatures. They do display altruism. Dogs often sacrifice their lives to protect their human 'family'. Cats, too, can be very considerate. Our cat would often make a present of a dead bird to my mother.
He may be only dimly aware of the immense problems of interdependence that characterize a society, of which the problem under discussion is only one. But his behaviour is something more than a mere translation of his personal preferences.
It is only that behavior which is of interest to Revealed Preference. Is it consistent or not? If it isn't- it might be worth looking at whether tastes have changed. This is the approach taken by Enterprises and Government Departments which supply goods and services.
Suppose Sen is right to suggest that behavior is 'more' than a translation of personal preferences. Then, it was wrong for the LSE to hire him to teach mainly British students. Being a Bengali, he could have no idea how their minds worked. However, the LSE knew very well that guys from Peru who studied econometrics could get good jobs working in Portugal for a big corporation. They didn't need to know Portuguese culture and psychology and philosophy. They just needed to look at the preference revealed by their consumer behavior.
In economic analysis individual preferences seem to enter in two different roles: preferences come in as determinants of behaviour and they also come in as the basis of welfare judgments.
No. It is assumed that people will do what they prefer to do provided it is feasible to do so. It is not assumed that their preferences will be linked to their welfare unless various conditions are met- e.g. the product is not addictive or mind-altering, there is perfect information, no uncertainty, no non-covexities, no externalities etc, etc.
For example, in the theory of general equilibrium the behaviour of individuals is assumed to be determined by their respective preference orderings,
or utility functions
and problems of existence, uniqueness and stability of an equilibrium are studied in the context of such a framework.
Around the time Sen was writing this, Economists were discovering the 'anything goes theorem'- i.e. no unique and stable solution may be reached. However the problem diminishes if there are many agents relative to the number of commodities. Still, hedging and 'income effects' create problems.
At the same time, the optimality of an equilibrium, i.e. whether the market can lead to a position which yields maximal social welfare in some sense, is also examined in terms of preference with the convention that a preferred position involves a higher level of welfare of that individua1.This dual link between choice and preference on the one hand and preference and welfare on the other is crucial to the normative aspects of general equilibrium theory.
No. What was at issue was whether 'Walrasian equilibrium' was achievable for the whole economy- i.e. there was a unique solution such that all markets clear. I suppose the ideological motivation was to defeat the Marxist notion that a 'general glut' was possible.
Sen is wrong to suggest that an illicit identification of preference with welfare was being made. Nobody doubted that, under the specified conditions, people could chose wisely for themselves. The Nazis had been defeated. Gandhians, in India, had been told to shut the fuck up. Everybody agreed that having more nice shiny things was good. Khrushchev was saying 'Russians will soon live better than you guys. We'll have nicer apartments and faster cars and so forth'.
All the important results in this field depend on this relationship between behaviour and welfare through the intermediary of preference.
No. They depend on 'convexity' and frictionless future's markets and perfect information etc. Of course, you could say 'all the important results in mathematics arise from the male gaze. Dudes keep measuring their dicks. That's why they invented measure theory and all that Sciencey stuff. What the world needs is a feminist mathematics which talks about how different numbers make us feel different types of orgasmic pleasure.' Sen is engaging in this sort of piffle. Since he was a little brown dude who had escaped the Black Hole of Calcutta, he afforded the economists of rich nations some much needed comic relief. After all, Kennedy had promised to make India richer and more powerful than China so as to demonstrate to the world that Democracy was better than Dictatorship. It was enough to parade Sen around for guys at the LSE to understand why Kennedy failed. To be clear, the answer was that Bengalis were as stupid as shit except when compared to South Indians.
The question that is relevant in this context is whether such heavy weight can be put on the slender shoulders of the concept of preference. Certainly, there is no remarkable difficulty in simply defining preference as the underlying relation in terms of which individual choices can be explained; provided choices satisfy certain elementary axioms, the underlying relation will be binary, and with some additional assumptions it will be an ordering with the property of transitivity. In this mathematical operation preference will simply be the binary representation of individual choice. The difficulty arises in interpreting preference thus defined as preference in the usual sense with the property that if a person prefers x to y then he must regard himself to be better off with x than with y.
No. This is not required by Revealed Preference. An ascetic may always choose what most mortifies the flesh. So long as his behavior is consistent, the theory applies because it makes no assumptions about what goes on in his brain. Sen imputes an assumption of his own to a theory which, in its mathematical form, has no such stipulation.
As illustrated with the example of the prisoners' dilemma, the behaviour of human beings may involve a great deal more than maximizing gains in terms of one's preferences
This is foolish. Does Sen really think the two gangsters weren't selfish bastards who harmed innocent people?
and the complex interrelationships in a society may generate mores and rules of behaviour that will drive a wedge between behaviour and welfare.
Criminals break Society's rules. Does Sen really not know that?
People's behaviour may still correspond to some consistent as if preference but a numerical representation of the as if preference cannot be interpreted as individual welfare.
Why not? There is nothing stopping anybody from doing so.
In particular, basing normative criteria, e.g. Pareto optimality,
But this can be operationalized so as to be positive. Define it as the state where nobody wants to make any more exchanges with any other. There is no excess demand or supply in any market. However this type of 'optimality' has no normative significance. If you pack your kid a healthy lunch and he trades it for an unhealthy snack, though Pareto efficiency has been achieved, the outcome lowers his welfare.
on these as if preferences poses immense difficulties.
of an equally imaginary kind.
To look at the positive side of the issue, the possibilities of affecting human behaviour through means other than economic incentives may be a great deal more substantial than is typically assumed in the economic literature.
Because economic literature must confine itself to economic topics. It would have looked decidedly odd if Arrow and Debreu had started babbling about the joys of sodomy. True, this may have changed Sen's behavior through means other than economic incentives but if wasn't what Arrow and Debreu were paid to do.
The rigid correspondence between choice, preference and welfare assumed in traditional economic theory makes the analysis simpler but also rules out important avenues of social and economic change.
Through, for example, increased sodomy on public thoroughfares.
An example may make the point clearer. Suppose it is the case that there are strong environmental reasons for using glass bottles for distributing soft drinks (rather than single use steel cans) and for persuading the customers to return the bottles to the shops from where they buy these drinks (rather than disposing of them in the dustbin). For a relatively rich country the financial incentives offered for returning the bottles may not be adequate if the consumers neither worry about the environment nor are thrilled by receiving back small change.
Ban steel cans. Fund research into a biodegradable alternative. Make that compulsory. A Cost Benefit analysis can make this politically palatable. The relevant 'revealed preference' is that of the legislature, not the individual. Why? There is an externality
To tackle this problem, suppose now that people are persuaded that non-return is a highly irresponsible behaviour, and while the individuals in question continue to have exactly the same view of their welfare, they fall prey to ethical persuasion, political propaganda, or moral rhetoric. The welfare functions and the preference relations are still exactly the same and all that changes is behaviour.
Then we say 'Revealed Preference' has changed because Tastes have changed due to a type of behavior having become repugnant.
The result is good for the environment but sad for the theory of revealed preference.
No. It is only sad for Sen who believes in welfare functions and capabilities and other such metaphysical shite.
I am not, of course, arguing that a change in the sense of responsibility is the only way of solving this problem. Penalizing non-return and highly rewarding return of bottles are other methods of doing this, as indeed will occur to any economist. In this particular case, these methods can also be used quite easily (since the problem of checking is not serious with the return of bottles), even though any system of payments and rewards also involve other issues like income distribution. The real difficulty arises when the checking of people's actions is not easy.
But checking the actions of suppliers is easy. That is why banning cans and making some better alternative mandatory is the way to go. Economists can be employed to do a Cost Benefit Analysis so as to persuade legislators to take such action.
To avoid a possible misunderstanding, I would like to distinguish clearly between four possible cases all of which involve the same choice (e.g. the use and reuse of glass bottles) but the underlying preferences have different interpretations :
But the revealed preference is one and the same. That is its advantage. We don't need to bother with nutters who say things like 'Bourgeois ideology causes people to shit on Mother Gaia. We must change bourgeois ideology by promoting sodomy on public thoroughfares'.
(1) The person simply prefers using glass bottles rather than steel cans from a purely self-regarding point of view, e.g, because he likes glass, or
believes that using glass bottles will encourage sodomy on public thoroughfares and thus deal a blow to bourgeois idealism
(perhaps somewhat incredibly) he believes the impact on environment of his using single-use steel cans (given the choices of others) will hurt him significantly.
because people will keep shoving them up his rectum.
(2) The person is worried about the welfare of others as well and his own welfare function includes concern for other people's welfare, and he reuses glass bottles because he takes the hurt on others as hurt on himself.
Why the fuck is this guy not spending all his spare time volunteering at a hospice? How come he has money to waste on soft drinks? He should be drinking tap water while wiping the arses of drunken hobos.
(3) 'The person's concern for other people's welfare reflected in his notion of his own welfare would not be sufficient to prevent him from using single-use steel cans if he could do it on the sly, but he is afraid of the social stigma of being seen to do the "wrong" thing, or afraid of others emulating him in doing the "wrong" thing and thereby his getting hit indirectly.
How could he do it on the sly? Doesn't he have to go to the shop and buy it there?
(4) The person can do the "wrong" thing on the sly without being noticed and he feels that if he did that he personally would be better off (even after taking note of whatever weight he might wish to put on the welfare of the others), but he feels that he would be acting socially irresponsibly if he did proceed to do it, and therefore does not do so.
In which case he simply prefers to do the 'right' thing, not the wrong thing.
I am primarily concerned with case (4), even though case (3) would also pose some problem for revealed preference theory (and the normative aspects of general equilibrium) since preferences are not usually defined on the space of stigmas and such things,
because we assume no externalities, no non-convexities etc, etc. But revealed preference does not need any such assumptions. It is parsimonious.
and identical commodity choices will involve quite different welfare levels depending on the reaction of others.
Revealed preference omits mention of 'welfare levels'.
But case (3) can be, in principle, taken care of through a suitable redefinition of the domain of choice.
As can anything else. That's why I can prove Sen eats only dog turds. I've suitably redefined the domain of choice.
Case (4) poses a more serious difficulty and it is with this case that I am concerned.
It poses no difficulty whatsoever. This is a guy who prefers to do the right thing.
It is, of course, perfectly possible to argue that actions based on considerations of social responsibility as opposed to one's own welfare do reflect one's "ultimate" preferences, and in a certain sense this is undoubtedly so.
But that is not the case here. The dude immediately, not ultimately, prefers the right thing.
The question is whether the identification of welfare with preference (in the sense of the former being a numerical representation of the latter) will survive under this interpretation.
So long as he himself makes it- sure, why not? True, some people may say 'bourgeois idealism prevented this dude getting enough sodomy on public thoroughfares and thus he can't be said to have any genuine consciousness or welfare or whatever.
The problem arises from the dual link-up between choice and preference on the one hand and preference and welfare on the other. Preference can be quite reasonably defined in such a way as to maintain one or the other, but the issue is whether both can be maintained through some definition of preference, and it is this dual role that I am trying to question here.
The answer has been supplied by previous economists- Preference and Choice and Welfare are linked if there are no externalities, no behavior altering goods, no non-convexities, there is perfect information etc, etc.
With what frequency do problems of the kind of case (4) arise?
Such problems can always be imputed for a mischievous purpose. I can say that no matter what Sen eats he wants to eat dog turds and since dog turds are a free good, it follows he only eats dog turds though no doubt his training in legerdemain means this is difficult to detect.
I do not know the answer to this question. It seems clear, however, that they arise often enough to be worried about their implications for traditional economic analysis. Moral considerations involving the question "if I do not do it, how can I morally want others to do it?", do affect the behaviour of people.
Only if externalities obtain. But in that case there is a 'second best' solution- e.g. banning x and making y mandatory- which is not based on preferences.
The "others" involved may be members of narrowly defined groups or classes, or widely defined societies, but such considerations do have a role in influencing choice.
But they are studied separately under the theory of externalities.
What harm would there be, it might be asked, in identifying welfare with what is revealed by a person's choices, even if that is not what he would claim to be his welfare as he himself sees it?
But Revealed Preference does no such thing. It merely looks for consistency and asks what has changed where it breaks down.
Apart from the danger of being misled by the confusing use of words, like "preference" or "welfare", which have some specific meanings as used in normal communication, there are also some difficulties for normative economics in basing optimality criteria (e.g. Pareto optimality) on preferences.
So, normative economics is shit. Don't do it.
There is a distinction from the point of view of social judgment between the relevance of a choice made under a moral sense of social responsibility and that made under a straightforward pursuit of one's welfare (including any pleasure one takes in the happiness of others).
No there isn't. Either a social judgment is correct and salutary or it is incorrect or mischievous. It doesn't matter if it was made by a bad man who wanted to make the right call or a good man who would always make the right call. Indeed, the former may have a bigger 'demonstration effect'. Even Trump is now bad-mouthing Putin. This is more persuasive than Biden's principled stand.
The identification of welfare with as if preferences
is not a feature of Revealed Preference theory. It is a feature of Sen-tentious shite.
blurs this distinction and withholds relevant information from the analysis of social welfare and collective choice.
It has no such power. Analysts can go after relevant information in any way they like.
An interesting illustration of the problem of the relation between preference, choice and social responsibility can be seen in the recent Chinese debates on the use of financial incentives in the allocation of labour in communal agriculture. During the so-called Great Leap Forward in 1958-60 the Chinese tried to reduce drastically the use of work rewards and raised very substantially the proportion of income distributed in the communes on other criteria such as the size of the family. In the absence of what the Chinese called "socialist consciousness", a system of this kind produces precisely the prisoners' dilemma type of problem. Each may prefer that others should work hard, but given the actions of others may prefer to take it easy oneself, even though given the choice between all working hard and none doing so people may prefer the former.
This is hilarious. Shirkers got shot unless they were the guys with the guns in which case lots of non-shirkers got shot till suddenly tens of millions simply starved to death.
A social contract of sincere efforts by all is easy to think of but difficult to enforce, given the difficulties of supervision of the intensity of work. At the end of the Leap Forward period this experiment was abandoned, or drastically cut, and it was generally thought that the experiment was premature. The use of financial incentives was again expanded. How much of the difficulties of the Leap Forward period arose from this attempt at dissociating work from material incentives is not known clearly, but it certainly did not make things any easier.
To be fair, Bengalis of that period dismissed reports of mass starvation in China as British propaganda. There were crazy Maoists- like Comrade Bala- on the streets of London at that time. Sen, quite understandably, was taking the part of caution, not valor.
After the end of the Leap Forward period there have been several further attempts to move away from material incentives. Meanwhile the Chinese also tried out a programme of reorientation of behaviour patterns. The well-known "cultural revolution" put particular emphasis (as the so-called "Sixteen Points" explained) on "an education to develop morally, intellectually and physically and to become labourers with socialist consciousness." The relation of all this to the problem of work motivation is, of course, very close, and I have tried to discuss it elsewhere.
China was soon to decide that there was no fucking relation here whatsoever. What Marx actually said was 'to each according to his contribution' and open markets were best to ensure that was the actual outcome. Revealed Preference prevailed over Maoism or Sen-tentious shite.
Briefly, this can take one of two forms, viz, either (i) a reorientation of the individual welfare functions of the people involved, or (ii) a different basis of behaviour emphasizing social responsibility whether or not individual welfare functions are themselves revised. In practice it was probably a mixture of both. How successful the Chinese experimentation has been in the reorientation of behaviour patterns, it is difficult to assess fully at this stage. What is, anyway, important for our purposes is to note the relevance of this experiment on work motivation in China to the problem of the relation between choice, preference and welfare.
Work motivation has never been a problem for the industrious Chinese. Crazy Emperors, however, have posed a recurring challenge.
I should perhaps end with a critical observation on what tends to count as hard information in economics. Much of the empirical work on preference patterns seems to be based on the conviction that behaviour is the only source of information on a person's preferences.
It is the only source of information on their economic behavior. To say this is 'preferred' may be dismissed as 'bourgeois idealism' or, if you were working in a Western campus and hoped to get funding from big corporations, the smart thing to do career wise.
That behaviour is a major source of information on preference can hardly be doubted, but the belief that it is the only basis of surmising about people's preferences seems extremely questionable. While this makes a great deal of sense for studying preferences of animals, since direct communication is ruled out (unless one is Dr. Dolittle), for human beings surely information need not be restricted to distant observations of choices made.
Unless that is what you are paid to do.
There is, of course, something of a problem in interpreting answers to questions as correct and in taking the stated preference to be the actual preference, and there are well-known limitations of the questionnaire method. But then there are problems, as we have seen, with the interpretation of behaviour as well.
We have not seen that at all. Sen was talking nonsense.
The idea that behaviour is the one real source of information is extremely limiting for empirical work
it is the limitation which makes it potentially useful.
and is not easy to justify in terms of the methodological requirements of our discipline.
No. It is easy if your discipline is 'positive economics'. By contrast, with 'normative economists' your work can always be critiqued for paying insufficient attention to the soteriological benefits of incessant sodomy on sidewalks.
There is an old story about one behaviourist meeting another, and the first behaviourist asks the second: "I see you are very well. How am I?"
It is also what one Doctor or Psychiatrist or Spiritual seer might ask another. Indeed, the exchange of such 'marking services' motivates much social intercourse. I may think I'm doing very well, indeed, any day now I'm going to be elected Pope, but you may observe that my behavior is erratic and get me to see that taking crack-cocaine and not sleeping for weeks on end might have had a debilitating effect.
The thrust of the revealed preference approach has been to undermine thinking as a method of self-knowledge and talking as a method of knowing about others.
No. People were welcome to think and talk about all sorts of things. They just ought not to drag normative issues into positive economics. Sen himself would have been none to pleased if a student had interrupted him in order to talk of the soteriological benefits easily gained through incessant sodomy on sidewalks. I'm not saying I was the student in question. It was another bloke. I can't tell you his name because we were in the SAS together.
Perhaps I should now gather together the main themes that I have tried to develop in this lecture. First, I have tried to argue that the interest of revealed preference theory lies in the skilful use of the assumption that behaviour reveals preference and not, despite claims to the contrary, in explaining "behaviour without reference to anything other than behaviour".
There is no such assumption. Sen may have been misled by the word 'revealed' but that was his own fault. The fact is 'revealed preference' enables us to avoid metaphysical arguments to get on with something useful. It is like the 'Revelation Principle' in mechanism design which is similar to the folk theorem of repeated games. The thing is useful because it enables economists to just get on with their job rather than talk Sen-tentious shite.
Second, if revealed preference is interpreted in this light, some of the additional axioms of revealed preference theory can be seen to be redundant for the purpose for which they are used. For example, the Weak Axiom of Revealed Preference can be seen to be quite strong and certainly sufficient for transitivity without requiring a stronger axiom.
This is only the case for choices over all subsets of the alternative set with at most three elements. This is very restrictive because economists are normally looking at much bigger bundles of goods. That's why the Strong axiom is useful.
Third, the fundamental assumption about the revelation of preference can be criticized from many points of view, including the possibility that behaviour may not be based on systematic comparison of alternatives.
This is irrelevant. We can detect inconsistency and ask why it arises. This helps us get to a Structural Causal Model useful for our purpose.
More interestingly, the person in question may not have a connected preference pattern and in terms of observation it is difficult to distinguish such incompleteness from indifference
But by the magic of the law of large numbers this problem diminishes as the scale of the enterprise increases. Revealed Preference came into its own during a period when economies of scale and scope were being increasingly exploited. It may be that in shrinking markets a 'phenomenological' approach would have more appeal.
Fourth, even if all these problems are ruled out, there remains a fundamental question of the relation between preference and behaviour arising from a problem of interdependence of different people's choices which discredits individualistic rational calculus.
That's why there is a separate theory of externalities
The problem was illustrated in terms of the game of the prisoners' dilemma. The usual analysis of the prisoners' dilemma has tended to concentrate on the possibility of a collective contract, but in many problems such a contract cannot be devised or enforced.
Though contract killings are part and parcel of life in the underworld.
Even in the absence of a contract, the parties involved will be together better off following rules of behaviour that require abstention from the rational calculus which is precisely the basis of the revealed preference theory.
Hilarious! Sen thinks gangsters are sticklers for 'rational calculus' in between robbing and killing people.
People may be induced by social codes of behaviour to act as if they have different preferences from what they really have.
Sen's real preference is to eat dog turds. He may argue otherwise but I can see into his head. That's the 'capability' which makes me super-special.
This type of departure may also be stable for those codes since such behaviour will justify itself in terms of results from the point of view of the group as a whole.
Which begs the question of why social codes should not become more and more onerous. The answer is you might get a tipping point and an abrupt descent into anarchy.
Finally, this problem has an important bearing on normative problems of resource allocation formulated in terms of the dual link between choice and preference and between preference and welfare.
Normative economics can't accept any links of these types. It has its own configuration space such that there is a path between what obtains and what is judged to be ideal. It is perfectly possible that this might involve people not having free choice even absent externalities just so as to get them into the habit of obedience. Universities and Armies and learned Professions often use such methods to put the stamp of uniformity on their new recruits. There is a saying 'there is the right way to do a thing, there is a wrong way to do a thing, and there is the Army way of doing the thing.' The lesson is you must do things the Army way. But this is equally true of mathematical economists. The tripe they write may be highly critical of each other but au fond it rigorously remains tripe.
The type of behaviour in question drives a wedge between choice and welfare,
Welfare may motivate choice but behavior, whatever its type, can't drive a wedge between things which only exist by imputation.
and this is of relevance to general equilibrium theory
which is not relevant to anything because it neglects Knightian uncertainty
as well as to other aspects of normative economics.
Which only exists because Sen eats dog turds as I can easily prove with my 'slingshot' argument.
Preference can be defined in such a way as to preserve its correspondence with choice,
as seen by the person in question
or defined so as to keep it in line with welfare as seen by the person in question,
in which case it is the same as choice as seen by the person in question
but it is not in general possible to guarantee both simultaneously.
Save by the person in question. If his choice was inerrant and his preferences were inerrant then the welfare he gets corresponds to choice and preference.
Something has to give at one place or the other.
Only if a Sen-tentious fool sticks his oar in thus neglecting his own preference to scour the streets for dog turds which he greedily devours.
No comments:
Post a Comment