Taking Preferences Seriously
Instead of something riveting, you start off your economics career with what may be the most boring material possible: consumer preferences. Worse still, the professor drags on and on about weird concepts like utility functions and ‘transitivity’. After the day ends, you wonder: Is this really what economics is all about?
It is the first day of college, and you are excited to see what your microeconomics class will be like. Perhaps you would begin with discussing trade policy, or maybe even ways to spur development in poorer nations. As you go down the list of exciting topics you want to learn about, you see your professor upload their lecture slides. Instead of something riveting, you start off your economics career with what may be the most boring material possible: consumer preferences. Worse still, the professor drags on and on about weird concepts like utility functions and ‘transitivity’. After the day ends, you wonder: Is this really what economics is all about?
Indeed, such abstract concepts are often unintuitive for the first-timer, and we may wish to ignore them and wait for more interesting applications. After all, many of us want our economics training to do something meaningful, whether that be in policy prescription or elsewhere. But, the initial focus on individualistic preferences is not something to be disregarded as the folly of the old generation of neoclassical economists. Rather, this philosophical frame of analysis helps properly shape the role of economics relative to that of other social sciences. If we forget the way preferences shape economics, we risk harming our ability to apply the discipline in a beneficial way in the first place.
To see why, consider the common criticisms that economics is too focused on rational individuals and too reliant on utilitarian conceptualizations of social good. That is, making the economic sphere a realm of study independent of other moral, ecological, or social spheres risks reliance on narrow-minded definitions of ‘welfare’ and the like. Of course, it is true that normative concerns regarding the economy ought not to be incompatible with the empirical study of the economic realm and that studying the economy requires utilizing insights from other disciplines. In the field of public policy, for instance, merely suggesting that one solution is ‘better’ than another requires some notion of what is good for people or society ‘as a whole’. And fields like behavioral economics have been trying to improve upon traditional rational consumer models for the past few decades.
But these normative claims are proper only after objective analysis has been made. Recommending policy to achieve an ethical ‘ought’ is not possible without making those reforms compatible with individuals and economic transactions as they currently exist, not as we wish them to be. The economist’s job, in the broadest sense, is to figure out what drives people to act in an ‘economic’ way, and how billions of people can independently work to give rise to the enormous, dynamic social institutions that we see today. We may incorporate the work of the sociologist or the political scientist, but this is only to enhance our ability to turn opinions about economic phenomena into knowledge of them.
Ultimately, this means taking people’s preferences seriously. The artificial descriptors we give to the logic of the consumer – reflexivity, convexity, etc. – are not done out of a requirement to follow a rigid ‘neoclassical’ methodology but to begin to understand the most fundamental feature of the economic world: buying and selling. How our policies impact ‘the economy’ is how it impacts the people an economy represents. If we wish to, for instance, alleviate the suffering of those in poverty, we must have some way of measuring that suffering. And suffering is a subjective phenomenon – pain or shame is something people feel and is connected with what people want versus what they do not have, or, in tragic cases, is something imposed upon them. It would be rather ironic, in an effort to make economics more ethically aware of the grievances and anger people have over their economic reality, to give up the mode of analysis that puts people’s preferences first.
In a sense, the conjecture that economics is scientifically bureaucratic is not entirely wrong, but this is not inherently a bad thing. In a democracy, the moral and ethical implications of economic findings is something to be discussed at large with our social peers. Too often in politics do people claim to speak for a group, or worse still to claim that group speaks for society as a whole. If we wish to let people themselves be the judge for what is best for them, or to make policy that makes them freer to pursue meaningful lives, then we cannot disregard consumer preferences and contemporary individualistic models as neoclassical, utilitarian mumbo-jumbo. Leaving some philosophical concerns to democratic dialogue while making economics focused on pure objectivity and the study of human action may be the right choice, however much that may unsettle us at the start of our education.
Written by Henry Olsen