Re: On Utility Theory

["Alan G. Isaac" <AISAAC@xxxxxxxxxxxx>]

On Wed, 16 Nov 1994 23:16:10 -0700 Herbert Gintis said:
>	I use utility theory virtually everything I write. The theory
>of the firm, labor markets, education, microfoundations of macro,...
>everything.

Of course. I haven't argued against the existence of domains
in which utility theory can yield insights: just the
opposite, as you know from my exchange with Jamie.
But you seemed to indicate that utility theory had
some practical application beyond common sense and
public discussion in considering the welfare implications
of actual public policy. This is the kind of example
I was requesting. And as I said: I'm open to
persuasion by an interesting example.

On another point: you claim
>	But Rawls uses utility theory. The veil of ignorance is an
>insurance argument, the least well off principle uses utility.

I deny that there is any interesting sense in which Rawls
can be claimed to use utility theory. Will you claim that
anyone who refers to "well-being" is using utility theory?
(If so, won't your claim that utility theory is useful
for welfare analysis become tautological?)

I also doubt the usefulness of characterizing the veil
of ignorance as an insurance argument, which I find
procrustean at best. The original position is
perhaps characterizable as an imaginary situation in
which imaginary agents essentially stripped
of specific preferences agree to institutions that
limit bad outcomes, so in that sense there is
some vague link to insurance arguments. But it
is far from (and in fact opposed to) some kind
of optimal insurance argument based on given
preferences. Further, since Rawls is explicit
that this story is just a device to help us
restrict the kinds of reasons offered in
public discussions of justice, I think trying
to characterize it as an insurance argument
leads to a misplaced emphasis. (He isn't
just saying that just institutions insure
against risk, which seems closer perhaps
to Harsanyi's view.)

--Alan G. Isaac