The problem is that people are naturally risk averse, and thus we always arrive at a point of utility that is sub-optimal. Not only that, we are not wise enough, nor rational enough to live anywhere near the lives that we have within grasp.
Risk-averseness: I agree, partially. Knowing you're risk-averse can (and should) lead you to compensate for it. See winner's curse, prospect theory et al. And I'm not entirely sure about risk-averseness outside agency problems. If the axioms of invariance and substitution hold (as they should within standard micro theory), risk-averseness should be compensated for.
we always arrive at a point of utility that is sub-optimal.
Better a point that is sub-optimal than null-optimal.
Now in analysing tasks from a simple marginal benefit/cost analysis, you risk falling into a pattern in which the tendency to be risk-averse moves you closer and closer to adapting demand to supply, rather than supply to demand. To some extent, this has to happenOn adapting demand to supply: Even you said this has to happen, in a sense. Remember, unlimited wants. There's no real way you could possibly satisfy all those wants, so you adapt those demands to the ones that can (ir)rationally be satisfied.
The economic problem is precisely that, in one sense: To pick the option that gives you the most utility at the lowest opportunity cost.
I call slippery slope. This was a subjective account of my own demand/utility functions, and there obviously exist some people who place greater utility on maximising than satisficing. I never said everyone does this.
but in satisficing, rather than maximising, this can have the effect of higher qualities being run out of business and thus resulting in a continual narrowing of boundaries for all.
Higher qualities? I call strawman. Higher qualities (in a consumer-sovereign, market-oriented sense) are those qualities I (and you, and everyone else) determine to have value to me/them. You can't blame people for buying what they want, regardless of how misinformed they may be (or want to be even. You can lead a consumer to information, but it doesn't mean they'll learn. In addition, I'm making concessions to market-distortive situations such as monopoly, externalities, cartels, etc. This is where stepping in is justified.)
That's why I object to the logic of obeying price signals. To some extent it's unavoidable, but the extent to which you conform creates a greater alienation from self that degrades the lives we lead.
Greater alienation of self that degrades the lives we lead? Shopping around is not a "greater alienation from self that degrades the lives we lead." That's a mighty presumptious statement about my life right there. Call me what you want, but do not call me a bad consumer. Price signals are a valid (and valuable) form of information transmission. Are you saying I shouldn't act on information available? Not only that, I act on other signals available to me as well; if this were some other game available to me at the same price, I would not buy it. I do not base my decisions solely on price.
Effectively, what I was describing in The Spectrum of Wants was a simple heuristical method of demand sorting, given finite time, finite information and infinite wants. YMMV. In short: cognitive biases do not an argument make.
Jesus, you've made me sound like Miltie Friedman. I feel dirty.
As to Sam's whiteness:
I told you!
3 comments:
Short version: My Mileage Varied.
Long version:
Risk-averseness does not cancel out. In the sense that when we're working with figures and quantifiable qualities, behaviours such as the winners curse show us to self correct. However, we are not, I repeat not rational in most cases. We are no where near Homo Economicus. Time and time again, we are shown to prefer behaviours that are explicitly absurd in a rational sense.
Look at the study done by Behavioural Economists and Psychologists. We exhibit behaviour that consistently violates the conditions of rationality, even those who have explicit knowledge of the errors at hand. The utility we derive from our decisions differs from the expected outcomes of the decisions we make. It doesn't make any sense, but that's how we behave. Our Marginal Cost/Benefit analysis are always tainted.
In a macro sense, I do believe in a system that has a mechanism for allocational efficiency, price signals. These will have the desired result in aggregate. However, that doesn't mean I don't think your method of utility maximisation makes any sense. An erroneous cost/benefit analysis may lead to less utility than previously. Erroneous outcomes can stem from erroneous data and erroneous reasoning. Since the latter is unavoidable, can we at least avoid the former? and try and improve the latter?
Now, you as an individual consumer acting as irrationally as the rest of us are free to satisfice, rather than maximise. However, I'm arguing that you will be an ineffective consumer if you do so, because you are not engaging in the self-reflexive behaviour that you held to be enough to compensate for risk-aversion.
The more ineffective consumers are as a whole, the more ineffective markets are. You're offering an argument for a heuristic that I think is irrational for both a single player, and the game as a whole. Thus, a quick aside to mention that this wouldn't work for all, as well as one.
But yeah, kind of slippery-slope intended, in retrospect.
I'm arguing that all markets are failures to a large enough extent that it makes cost benefit analysis based on price indicators unwise at an individual level. The only reason I feel comfortable using an absurd term like Higher Qualities is because the notion of Pareto optimality seems laughable considering the state of conditions.
For instance, can we please get standardised products that don't kill both the people who make them and those who use them? Is it that hard? You'd think you'd be able to walk into a shoestore and not have to assume that children died for most of them.
The alienation stuff stems from a huge philosophy thing by some dead white dudes. Has to do with reification, domination and other such.
So yeah, feel free to act on information. I just wish to point out that the price information is a lot less shakier than say the information on what you want, and how much time you have. Hell, I have trouble figuring out what a decent substitute is in most cases. Or remembering how much time I have for things. Just remember that price information is misleading. And that the rational decision may actually give less utility than an irrational one. and a million other things that make life so fun.
Just don't try and tell me that you act rationally, or that your heuristic is rational. or that being rational is rational.
I think if you've gotten to this point, you've noticed that this has been much more about my existential storm than rishis :o
If it's alright with you, I'm going to continue this in posts, as I am lazy and suck at HTML.
I have some "objections" (sort of...we're not really arguing, again) which I will write up when I can be bothered, which hopefully will be soon.
Just to clarify, the existential storm that I had very little to do with the spectrum of wants essay. The existential storm was precipitated (did I just pun?) when I was wondering through my local supermarket. The spectrum of wants was a little turn of phrase that stuck in my head (among many other things), and I wrote it down and expanded it.
I brought an umbrella in anticipation of precipitation!
ella, ella, ella, eh eh eh
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