[PEN-L:4815] Re: econ. and cognitive psychology

[Rudy Fichtenbaum <FICHTENBAUM@xxxxxxxxxxxxxxx>]

>Professor White wrote:
>> 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.

and in response Darren Bush writes:

>Either way, whether I accept that utility diminishes at the margin
>or we achieve cosmic orgasm through utility functions that take into
>account the happiness of other people, I am still left with very
>little information about human behavior outside the market or the
>world of finance.



Actually, I wouldn't give up quite that easily.  Although principles
texts rely on diminishing marginal utility as a heuristic it has
been total discredited as a plausible theory even by neoclassical
economists.  None other than Paul Samuelson, who doesn't hesitate to
the theory of diminishing marginal utility in his principles text,
wrote, "The discrediting of utility as a psychological concept robbed it
of its only possible vriture as an explanation of human behavior in
other than a circular sense, revaling its empitness as even a
construction." [Collected Scientific Papers, "A Note on the Theory
of Pure Consumers Behavior," p. 3.]

Its been a long time since graduate school but as I recall diminsihing
marginal utility relies on cardinal utility which requires that
utility be independent and additive.  It was this property that
caused nc theory to abandon cardinal utility i.e., diminishing marginal
utility, infavor of ordinal utility and a diminishing marginal rate
of substitution.  In fact, ordinal utility theory embraces the
pig principle i.e., more is always prefered to less.

In pen-l solidarity

Rudy


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