[PEN-L:4809] Re: econ. and cognitive psychology

[Adam White <whitea@xxxxxxxxxxxxxxxxxx>]

On Mon, 24 Apr 1995, DARREN BUSH wrote:

> It's strange that NC's would argue that your utility function could
> include concern for others.  When I taught micro and discussed
> utility theory, students frequently asked about family dynamics and
> concern for others and where these things fit in to utility theory.
> I used the following example to show where the problem lies:
>
> Suppose that I received utility from your happiness and you from
> mine.  I'm happy that you are happy.  My happiness about your
> happiness makes you happier.  That, in turn, makes me happier.  This
> situation either degenerates such that our preferences change (to
> avoid hysteria) or we reach some sort of "cosmic bliss point."
> (Anyone have a cigarette?)  This situation obviously breaks down and
> leads some NCs to conclude that utility can only be derived from
> commodities.
>
Oh come now! This argument is akin to saying that because eating one ice
cream cone is good, eating ten thousand at a sitting is better -- or at
least until you reach your bliss point and start craving tobacco. My simple
(Economics 101) rebuttal is based on diminishing marginal utility. I derive
utility from your happiness of course, but when your happiness begins to
reach blissful proportions you become annoying to the point where my
marginal utility is less than zero. The graphical explanation relies on a
sigmoid or parabolic curve.

Adam White
Toronto