It is telling that economists use a term reserved for one of the five senses, taste, to denote human desires and motives. This indicates first that economists consider human desires as private and therefore not subject to moral valuation. One cannot be scolded for having taste buds that prefer sour cream, for example, to yogurt. Similarly one cannot be scolded for liking pushpin (a triviality, a children’s game) better than poetry—the examples used by the founders of utilitarianism, Jeremy Bentham (1748–1832) and John Stuart Mill (1806–1873). Second, this signifies that economists consider human desires as personal and therefore not subject to interpersonal utility comparison. As much as it is supposedly impossible to compare A’s taste buds for sour cream with B’s, one cannot compare A’s utility from consuming an extra automobile with B’s. Third, this suggests that economists consider desires as fixed and therefore not to be tampered with to explain behavioral puzzles.
Whether neuroscientists regard the taste buds as private, personal, or fixed is another matter. At issue is the accuracy of the economists’ assumption of tastes as private, personal, and fixed. It is easy to see the limits of each of these assumptions, as many social scientists have shown. Nonetheless, they persist in mainstream welfare analysis and in economics textbooks. They have proved impervious to criticism because they lend themselves easily to the thrust of economic analysis. Namely, it is about rationality: how agents respond to incentives so they can maximize a given end by a given set of means (Robbins 1935).
Economists have identified several axioms as the necessary conditions of rationality. The most important are two axioms concerning how agents compare alternative bundles of goods according to their own tastes; that is, how tastes become “preferences.” According to the transitivity axiom, the preferences must be consistent. If an agent prefers A to B and B to C, then he or she must prefer A to C. According to the completeness axiom, the agent must be complete with his or her tastes. He or she must know how to rank all the bundles within his or her feasible set. This allows the agent to be decisive.
Empirical and experimental findings by behavioral-decision researchers in psychology and behavioral economists have questioned the axiom of transitivity. For instance, how one values a product may change depending on whether or not one owns the product, called the “endowment effect” (Thaler 1980) or “loss aversion” (Tversky and Kahneman 1991). It seems that agents value something more if they happen to own the item; the price at which they are willing to sell the item is higher than the price they are willing to pay for it. Some researchers have questioned this endowment effect on different grounds (Shogren, Shin, Hayes, and Kliebenstein 1994; Hanemann 1991; List 2001). Concerning the axiom of completeness, the parable of Buridan’s ass illustrates the problem of indecision. Agents may simply fail to rank two equally appealing bundles (Khalil 1997).
Economists are still in disagreement about how to interpret the empirical and experimental findings that question these axioms. This short entry tackles the assumptions about tastes from another angle: by directly examining the assumptions that tastes are private, personal, and fixed.
The assumption that tastes are private allows economists to treat all tastes—such as pushpin, cockfight, Aristotle’s Politics, altruism, and poetry—as fungible. This allows economists to place them as elements in a single utility function. In this manner, an agent would buy more poetry if the price of cockfight tickets increased. If an agent holds irreconcilable utility functions, as the multiple-self approach maintains (Elster 1986), the agent’s ability to economize across all tastes will be compromised.
The treatment of tastes as private comes at a price. It means that there is no room for educators and public figures to try to upgrade the tastes of the citizens. The upgrade would be deemed as arrogant and constitute interference in the citizens’ private lives.
However, this may not be necessarily the case. It is possible to maintain the fungibility of tastes, and hence allow for the calculus of optimization to proceed, without the tastes-as-private assumption. That is, it is possible to recognize a qualitative difference between pushpin and poetry without undermining utilitarianism or the idea of a single utility function. For instance, John Harsanyi (1997) and Yew-Kwang Ng (1999, 2003) distinguish between actual preferences, on the one hand, and informed preferences, on the other. Ng identifies ignorance as one reason, out of several others, that agents would fail to choose the more welfare-enhancing, informed preferences. For Ng, agents would want informed preferences in place of actual ones because the informed preferences would afford happiness. Also one can argue that agents, with sufficient practice and education, would find no discontinuity between coarse entertainment and high-culture entertainment.
The assumption of tastes as personal permits economists to avoid thorny political issues concerning the distribution of income. Economists usually restrict themselves to policies that avoid interpersonal utility comparison, based on what is known as the Pareto welfare criterion. This criterion stipulates that a policy maker can reallocate resources as long as it makes at least one agent better off without reducing the welfare of anyone else.
However, as Adam Smith (1723–1790) amply shows in The Theory of Moral Sentiments (1759), humans have the capacity to place themselves in the shoes of others, a quality he called sympathy. Sympathy, which can be extended to nonhuman animals, is a method of interpersonal utility comparison. It allows the agent to judge whether the pleas of others are justifiable, given the costs involved (see Khalil 2006).
The assumption of tastes as fixed involves two separate flavors: first, fixity of tastes across agents or cultures; second, fixity of tastes across time for the same agent.
Fixity across Agents or Cultures The fixity of tastes across agents or cultures allows economists to explain differences in behavior solely on the basis of differences in income and relative prices. This prevents scientists from inventing tastes in an arbitrary fashion. For George Stigler and Gary Becker (1977), to explain differences in behavior in terms of differences in taste amounts to an intellectual retreat. For instance, cohabitation in place of marriage in the United States and western Europe is currently free from stigma. In many other cultures, and in the historical past of Euro-American culture, cohabitation amounts to living in sin. It has been punished by ostracism or even death, known as honor killing. To explain the disappearance of the stigma surrounding cohabitation, it would be an intellectual retreat to state: “Oh, Europeans and North Americans are now humane; they shed the backward values.” Also if we see Agent Z suddenly buying more oranges than usual, it would be an intellectual retreat to hypothesize: “Oh, Agent Z suddenly started to like oranges more.” Such answers are intellectually unsatisfying because they beg certain questions: Why did the rest of the people in the world not become as enlightened as the North Americans and the Europeans? Why did Agent Z change his or her taste?
It is a better strategy to assume that tastes are stable, that is, the same tastes prevail across cultures and agents and to examine instead changes in incentives. Concerning cohabitation, there are several candidates: the introduction of the contraceptive pill in 1964, the spread of the welfare state, and an increased division of labor that facilitates female participation in the workforce. Each of these factors lowers the risk or cost of pregnancy and therefore lowers the cost of cohabitation relative to marriage. Also, concerning oranges, there are several candidates: lower prices of oranges, higher prices of all other fruits, or new information about the health benefits of oranges, for example. All of these candidates deal with the change of constraints and therefore avoid the intellectual retreat.
It would also be an intellectual retreat to evaluate the economic performance among countries by appealing to differences in cultural tastes (Khalil 2007a). If we witness one economy performing better than another, it would be an arbitrary assumption to suppose that the people of the better-performing economy had different tastes from the other. A more challenging task is to look for differences in climate, endowment, or relative prices. In fact it is crucial for analysis to maintain the fixity of tastes across cultures. Of course cultures have different tastes for how to prepare coffee or what to eat for breakfast. But such differences are trivial in comparison to fundamental issues, such as investment, innovation, and entrepreneurship. These issues are of universal concern for human survival. Given this, it is important to resist the rising tide of culturalist economics that tries to explain the debacles of, for example, Latin America or Islam in terms of fundamental cultural values (North 2005).
In the same vein, if one sees a person indulging in gambling or alcohol to the point of dysfunction, one should not invent new tastes, such as the theory that some people have a weak will toward present consumption while others have a strong will. This would be an intellectual retreat (Khalil 2007b). To see how or why some agents become addicted to or indulge in reckless activity, it is more intellectually appropriate to assume first that agents have the same tastes. Of course agents have different tastes, but such differences should be accounted for endogenously rather than as the entry point of analysis. This is especially the case if one intends to analyze actions that lead to the dysfunction of the agent, broadly called weakness of will, such as addiction and recklessness. It is important, then, to resist the rising tide of behavioral economics that tries to explain weakness of will as simply the result of present-bias tastes, which amounts to quasi-hyperbolic discounting (Laibson 1997; O’Donoghue and Rabin 1999).
Also the behaviorist onslaught has created new tastes, aside from the ones to explain weakness of will. It has created tastes for envy, jealousy, fairness, social preferences, and so on (Gintis, Bowles, Boyd, and Fehr 2005). In this manner, behavioral puzzles are not interrogated in relation to welfare or well-being (Khalil 2000, 2004). Rather, the puzzles are “solved” by the question-begging invention of new tastes. In fact economists are not short of evolutionary stories about the stability of populations with such new tastes (Francois and Zabojnik 2005; Gintis 2003a; Gintis 2003b; Bowles 2004, chap. 2). Such stories fundamentally depend on the variability of lineages of tastes across agents—true to the neo-Darwinian assumption of diverse lineages in the population as the prerequisite of natural selection. Such evolutionary stories then proceed to show why a lineage, such as a social preference toward trustworthiness, can become dominant. Namely, the lineage becomes dominant if it already exists in the population above a critical frequency. But such evolutionary stories amount to establishing the stability of the new taste at hand. They do not provide an endogenous account of the origin of the lineage. Worse, it is unlikely that members of a population would simultaneously experience a mutation of the same kind at a scale that is required to reach a critical mass.
Fixity across Time The fixity of tastes across time for the same agent, which can be called the “economics Archimedean rock,” affords the celebrated assumption of consumer sovereignty. This assumption allows economists to undertake a static welfare comparison. If an agent’s tastes are manipulated by powerful entities, such as firms and their advertising arms (Galbraith 1958) or the culture of competitive markets (Bowles 1998), the result is that the tastes of the consumer are not stable enough over time to afford welfare comparisons. If a monopolist M “brainwashes” or “educates” consumers to love C more if it is in its container M than if it is any other container, M’ — U (CM ) > U (CM’ ), then consumers suffer when CM’ replaces CM as a result of the breakup of the monopoly. Thus researchers cannot capture the welfare benefit, such as lower prices of C, as a result of the breakup of the monopoly.
The problem of change of tastes across time is about innate change. The problem, as discussed here, is not about fashion or fad. The issue of fashion deals with a covariation of tastes across consumers that is not prompted by a change of income, relative prices, or the innate change of taste. The change of tastes due to fashion, as Edi Karni and David Schmeidler (1990) suggest, does not threaten the idea of fixed tastes. They trace the phenomenon of fashion to the social aspect of the consumption of the goods under question, which explains the cyclical behavior.
The problem of change of tastes across time discussed here is, rather, due to the development of the agent, which is usually path dependent, where habits play a supreme role. Gary Becker (1996, chap. 1) proposes the notion of personal capital that is augmented through consumption. Past consumption enhances the marginal utility of current consumption, which becomes the basis of habit formation. Becker argues that the endogenous change of tastes across time does not result in unstable tastes. While the subutility function changes as a result of habit formation, the extended utility function is stable. Given the stability of the extended utility function, consumer sovereignty is preserved, so static welfare comparison is possible. Along a different vein, Ng (2003) uses the analysis of happiness, based on informed and nondeceiving preferences, to help researchers to judge welfare when there is a change of tastes.
Robert Sugden (2004) also deals with consumer sovereignty in the face of changing tastes. For Sugden, however, tastes change because they are reference dependent, where the reference can be the endowment (endowment effect) or the present (weakness of will). Given that tastes change with arbitrary factors, such as endowment or temptations afforded by the present, tastes amount to incoherent preferences. The normative economics Archimedean rock cannot be the satisfaction of preferences. Sugden suggests that consumer welfare should be evaluated according to the opportunity or freedom that the consumer has to assert his or her right to take care of himself or herself. Welfare therefore is not primarily about preference satisfaction. It is primarily about the freedom to pursue one’s preferences, which can be incoherent. Such freedom, possessed by the individual, should be the true meaning of “consumer sovereignty.”
Economics would greatly benefit from dropping the assumptions that tastes are private, personal, and fixed across time for the same individual. The only assumption about tastes that, at first approximation, is worth preserving is the fixity of tastes across agents or cultures. This should not mean that, at second and tertiary approximations, cultures and agents have identical tastes. However, for fundamental issues—such as weakness of will, trustworthiness, entrepreneurship, and cohabitation—it is imperative not to explain differences in practice in terms of differences in taste. Such an explanation would be an intellectual retreat.
SEE ALSO Altruism; Becker, Gary; Behaviorism; Bentham, Jeremy; Cultural Relativism; Distinctions, Social and Cultural; Economics, Behavioral; Economics, Neoclassical; Galbraith, John Kenneth; Happiness; Individualism; Marginalism; Mill, John Stuart; Needs; Pareto Optimum; Rationality; Sen, Amartya Kumar; Smith, Adam; Socioeconomic Status; Stigler, George Joseph; Stigma; Sympathy; Utilitarianism; Utility Function; Want Creation; Wants; Welfare Analysis; Welfare Economics
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Elias L. Khalil