I am relatively new to the (large number of) utility / preference discussions on Lesswrong. Can you please tell me what a reasonable and relatively short introductions to the foundations would be?
My problem is that the discussion or research project seems to be detached from the economics literature. I also do not see any discussion of “contribution to the literature” in your post, so it is hard for me to see the starting point.
Just to give a little background to see where I am starting. The following is my understanding of welfare evaluations in economics. I hope I do not misuse your post too much, because my comment may have little concrete relation to what you write.
In theoretical Microeconomics, there are basically four approaches:
1. Understanding utility as preferences. This is completely ordinal, and it’s unclear how utility between people should be compared. From a welfare-maximization perspective, this is very problematic, as shown by Arrow’s impossibility theorem.
2. von-Neumann-Morgenstern expected utility. Here, utility functions are cardinal, but expected utility is ordinal and again it’s not clear how utility could be compared. So I guess that the impossibility theorem still applies.
3. Welfare economics. Here we just ignore the problem by adding up market surplus, implicitly or explicitly assuming that all utility functions are quasi-linear, and linear in income. And additionally, we implicitly assume almost always that it is not a problem that people are not compensated compared to a pre-policy state of the world, as long as the winners could compensate the losers (Kaldor-Hicks criterion). This is a value assumption, though I have read economists that have claimed that the opposite would be a value assumption. Welfare economics includes an expected-value version, which is no problem because everything is cardinal.
4. Prospect theory and similar approaches that include reference points (of a person’s consumption, income, whatever). While there is a lot of evidence that this is more successful at explaing behavior, I am not sure whether there is any accepted welfare theory based on that. I guess the problem is that if reference points and social preferences enter the utility function, strange implications may arise. If there are rich and poor people, then redistribution has to take into account their reference points, which would limit redistribution, which seems unfair. Additionally, if I can somehow convince myself that I deserve more money, and a benevolent utilitarian planner would be omniscient and thus see my conviction, then he should give me more money.
Reading Kahneman’s research summarized in Thinking, Fast and Slow also leads to weird conclusions, because when people evaluate their life, their evaluations are weird. Kahneman writes, for example, that people evaluate the pain suffered in some span of time by the pain at the end and the highest value of pain. Which makes people choose “60 seconds of strong pain plus 30 seconds of moderate pain” over “60 seconds of strong pain”.
Then there are many welfare discussions that use macroeconomic models, i.e., assuming a cardinal utility function of a representative agent (usually expected utilitarian discounted utility, sometimes max-min / Rawlsian). I think there is no real theoretical foundation.
Finally, there are empirical redistibution preferences that show that people have a preference for given money to people who “deserve” it by some measure. This could be understood as similar to welfare evaluations based on prospect theory, but it additionally tells us where the reference points would come from.
I think in terms of economics, vNM expected utility is closest to how we tend to think about utility/preferences. The problem with vNM (from our perspective) is that it assumes a coherent agent (i.e., an agent that satisfies the vNM axioms) but humans aren’t coherent, in part because we don’t know what our values are or should be. (“Humans don’t have utility functions” is a common refrain around here.) From academia in general, the approach that comes closest to how we tend to think about values is reflective equilibrium, although other meta-ethical views are not unrepresented around here.
For utility comparisons between people, I think a lot of thinking here have been based on or inspired by game theory, e.g., bargaining games.
Of course there is a lot of disagreement and uncertainty between and within individuals on LW, so specific posts may well be based on different foundations or are just informal explorations that aren’t based on any theoretical foundations.
In this post, Stuart seems to be trying to construct an extrapolated/synthesized (vNM or vNM-like) utility function out of a single human’s incomplete and inconsistent preferences and meta-preferences, which I don’t think has much of a literature in economics?
In this post, Stuart seems to be trying to construct an extrapolated/synthesized (vNM or vNM-like) utility function out of a single human’s incomplete and inconsistent preferences and meta-preferences
Indeed that’s what I’m trying to do. The reasons are that utility functions are often more portable (easier to extend to new situations) and more stable (less likely to change under self-improvement).
I am relatively new to the (large number of) utility / preference discussions on Lesswrong. Can you please tell me what a reasonable and relatively short introductions to the foundations would be?
My problem is that the discussion or research project seems to be detached from the economics literature. I also do not see any discussion of “contribution to the literature” in your post, so it is hard for me to see the starting point.
Just to give a little background to see where I am starting. The following is my understanding of welfare evaluations in economics. I hope I do not misuse your post too much, because my comment may have little concrete relation to what you write.
In theoretical Microeconomics, there are basically four approaches:
1. Understanding utility as preferences. This is completely ordinal, and it’s unclear how utility between people should be compared. From a welfare-maximization perspective, this is very problematic, as shown by Arrow’s impossibility theorem.
2. von-Neumann-Morgenstern expected utility. Here, utility functions are cardinal, but expected utility is ordinal and again it’s not clear how utility could be compared. So I guess that the impossibility theorem still applies.
3. Welfare economics. Here we just ignore the problem by adding up market surplus, implicitly or explicitly assuming that all utility functions are quasi-linear, and linear in income. And additionally, we implicitly assume almost always that it is not a problem that people are not compensated compared to a pre-policy state of the world, as long as the winners could compensate the losers (Kaldor-Hicks criterion). This is a value assumption, though I have read economists that have claimed that the opposite would be a value assumption. Welfare economics includes an expected-value version, which is no problem because everything is cardinal.
4. Prospect theory and similar approaches that include reference points (of a person’s consumption, income, whatever). While there is a lot of evidence that this is more successful at explaing behavior, I am not sure whether there is any accepted welfare theory based on that. I guess the problem is that if reference points and social preferences enter the utility function, strange implications may arise. If there are rich and poor people, then redistribution has to take into account their reference points, which would limit redistribution, which seems unfair. Additionally, if I can somehow convince myself that I deserve more money, and a benevolent utilitarian planner would be omniscient and thus see my conviction, then he should give me more money.
Reading Kahneman’s research summarized in Thinking, Fast and Slow also leads to weird conclusions, because when people evaluate their life, their evaluations are weird. Kahneman writes, for example, that people evaluate the pain suffered in some span of time by the pain at the end and the highest value of pain. Which makes people choose “60 seconds of strong pain plus 30 seconds of moderate pain” over “60 seconds of strong pain”.
Then there are many welfare discussions that use macroeconomic models, i.e., assuming a cardinal utility function of a representative agent (usually expected utilitarian discounted utility, sometimes max-min / Rawlsian). I think there is no real theoretical foundation.
Finally, there are empirical redistibution preferences that show that people have a preference for given money to people who “deserve” it by some measure. This could be understood as similar to welfare evaluations based on prospect theory, but it additionally tells us where the reference points would come from.
I think in terms of economics, vNM expected utility is closest to how we tend to think about utility/preferences. The problem with vNM (from our perspective) is that it assumes a coherent agent (i.e., an agent that satisfies the vNM axioms) but humans aren’t coherent, in part because we don’t know what our values are or should be. (“Humans don’t have utility functions” is a common refrain around here.) From academia in general, the approach that comes closest to how we tend to think about values is reflective equilibrium, although other meta-ethical views are not unrepresented around here.
For utility comparisons between people, I think a lot of thinking here have been based on or inspired by game theory, e.g., bargaining games.
Of course there is a lot of disagreement and uncertainty between and within individuals on LW, so specific posts may well be based on different foundations or are just informal explorations that aren’t based on any theoretical foundations.
In this post, Stuart seems to be trying to construct an extrapolated/synthesized (vNM or vNM-like) utility function out of a single human’s incomplete and inconsistent preferences and meta-preferences, which I don’t think has much of a literature in economics?
Indeed that’s what I’m trying to do. The reasons are that utility functions are often more portable (easier to extend to new situations) and more stable (less likely to change under self-improvement).