I have always been very uneasy about economists stating that they they are producing
a theory in which they assume that people are rational, utility maximizers. The two
elements that I don't like...one, is the idea that they are rational and the other thing
is, what they're rational about, namely, maximizing utility. And I don't know whether you in your
writing use this phrase, but lots of economists do. Let's start with utility. I don't understand
what it even means, because you can't put a little measure into a person's brain and
read off utility and Arlene Fisher had the idea of this unit...utils...we know there
isn't such a unit. Why can you talk about maximizing something that you can't measure?
BECKER: Alright, this is a good subject to start with, because I think we do disagree
on this one. And I think you hit the nail right on the head with (regards to this being)
a serious disagreement. I do believe that it's useful. And that's all I would say, it's
a useful way of looking at consumer behavior...to assume that they're maximizing utility. Whether
we want to call that rational or not...to me (that) is a secondary issue, but I do believe
they are maximizing utility. It's not that I believe there is such a unit of utils that
we could ever measure. To me, maximizing utility simply means the following: That consumers
can order all the opportunities they have available to them...possible choices. They
can order them so they prefer some more then to others. They can rank them. And they have
limited resources. They have limited income...wealth, time, whatever it may be. And that they attempt
to choose that possibility...that combination of goods and so on that is ranked the highest
consistent with their limited resources. Now I think this is a testable theory. That we
can test it by various implications about how they would respond to prices, income,
changes in wages, whole host of other patterns. It can become a very rich theory. I think
it is becoming a very rich theory. It's not an empty theory. But it does not require the
assumption that everybody has some kind of utils in their head that they're calibrating
and they convey this gives me ten utils and five...Anyone can do away with utils entirely,
but just ask where do they prefer...they want to get more rather than less. They want to
do that in goods that they have a higher preferences for, rather than others. And my claim would
be, this isn't the best theory possible, but it's the best theory that we have. I don't
know of any alternative that gives us the insight that this does.
COASE: You just said that one can get rid of it, why don't we get rid of it and just
study choices? People choose and we can study what choices they make and we can then discuss
whether their consistent or not...which is in some ways necessary for some of the tests.
My guess would be that you find a lot of inconsistencies in consumer behavior.
BECKER: Well, I think consistency is the task that, in fact, one can show that the usual
theory in terms of ranking and ordering, complete ordering of opportunities, is basically equivalent
to inconsistency tests that people behave consistently. Now maybe there had be a lot
of inconsistencies. But let me sort of point out that there had been a few attempts to
study the problem of consistency. Not so much with individual household data, but with more
group data, because one hasn't had the rich household data to do that, which is a limitation.
Let's say if people looked at long term English consumption patterns, American patterns, patterns
of different groups comparing different countries...and it had been very difficult to find dramatic,
very common examples of inconsistent behavior in that type of data. I'm sure they'll show
up more commonly in individual... COASE: You know a lot of work is being done
in showing that there are anomalies in individual behavior. I don't know about this well, but
it wouldn't surprise me if they're right. In fact...
BECKER: But its been only based on experimental evidence not on actual choices. And I think
you and I would agree that we don't necessarily have this same theory to predict how people
behave in experimental situations as they would behave in market situations.