Economics Questions

Re: Robert Nosick's criticism of Austrianism and Indifference

BlackNumero — Tue, 17 Aug 2010 19:18:46 GMT

That's not in dispute, the point is that it's an analytical tool used to understand and illustrate various concepts. As I said, people can't choose between different points on an indifference curve, because most of the time there's only one single point along said cuves that they can choose. They chose between indifference curves, consuming on a point (the only possible point) on the highest difference curve possible given their budget constraint.

As far as I can tell the only way Austrians can wholesale reject indifference analysis is by claiming that indifference doesn't exist. I remember one Austrian claiming that indifference doesn't exist because we don't observe it. Needless to say, that's a strange position for an Austrian to take.

Although indifference curve graphs are analytical tools used to illustrate various concepts, Austrians would disagree with modern neoclassical consumer choice theory for a number of reasons, such as 1)Indifference expressed in action 2)Circularity 3)Mathematical contunity of utility curves 4)Cardinal Utility 5)Inherent unrealism.

According to the theory, on a given indifference curve with a certain level of utility and a supposed budget line, if the solution is an "interior optimum" agents are supposed to choose the basket where the BL is tangent to the indifference curve, where the marginal rate of substitution equals the two prices of the good (what you said earlier). The indifference curve is supposed to be a continous curve (meaning solutions can be like 4.3573 apples) of baskets of goods where an individual is indifferent between choosing among them. He certainly could "choose" a basket that doesn't maximize utility, but in the solution he is always suppposed to choose the optimal basket, aka the basket that he prefers. By choosing one basket over the others, they no longer have the same "level of utility" and can be on the same indifferent curve, so the whole apparatus falls apart.

Re: Robert Nosick's criticism of Austrianism and Indifference

EconomistInTraining — Tue, 17 Aug 2010 18:39:48 GMT

Once an individual acts towards one alternative, then they are no longer indifferent to it compared to other alternatives

That's not in dispute, the point is that it's an analytical tool used to understand and illustrate various concepts. As I said, people can't choose between different points on an indifference curve, because most of the time there's only one single point along said cuves that they can choose. They chose between indifference curves, consuming on a point (the only possible point) on the highest difference curve possible given their budget constraint.

As far as I can tell the only way Austrians can wholesale reject indifference analysis is by claiming that indifference doesn't exist. I remember one Austrian claiming that indifference doesn't exist because we don't observe it. Needless to say, that's a strange position for an Austrian to take.

Re: Robert Nosick's criticism of Austrianism and Indifference

Lagrange multiplier — Tue, 17 Aug 2010 17:43:45 GMT

EconomistInTraining, you're right. That's all I'm going to say.

And, critically, so was Nozick.

Re: Robert Nosick's criticism of Austrianism and Indifference

BlackNumero — Tue, 17 Aug 2010 17:22:15 GMT

Block would say that although you were indifferent before the action, at the moment you called Heads, you considered Heads and Tails to be two different goods, and valued one over the other, for some reason. What reason? Who knows? Is Heads slightly easier to say than Tails??!! This is indeed weird and cumbersome.

Although it might be weird to think about, it still is an example of preference. You picked Heads. Not tails. We could go into why someone does something, but it seems like that borders on psychology. In economics, you picked heads. Whats more important, is that you picked the action that went along with heads. You could easily flip a coin about which movie to go see (The Expendables or The Other Guys) flip the coin, and when heads comes up (The Other Guys), you could think in your mind "Ehhh...I'll flip it one more time". Or another scenario involving you picking heads as the decider of a particular action.

Hoppe would say that the question doesn't really make sense, since "choosing Heads" was not the actual action, i.e. not the preferred description of the action. The preferred description was "choosing Heads or Tails". The reason for this action was to try to win a coin-toss; simple. So to the question "Why choose Heads?", the answer is "Because this will enable me to achieve my end of choosing Heads or Tails".

Is this skirting the issue? I don't think so, because it is very easy to ask a question by giving a non-preferred description of an action, and getting an answer similar to this. For example, the preferred description of the action I am doing right now is posting in an internet forum. Ask me why I am doing this and you will get a meaningful, interesting answer. Ask me why I am sitting at my desk, or why am I pressing buttons on a keyboard, or why I am looking at a computer screen, and the answer will be "Because they are means to enable me to achieve my end of posting in an internet forum."

But you still have to choose the best method of achieving your end. I think it still skirts the issue, because it doesn't really describe what mean the individual will choose. And by choosing heads, you signifiy that at the time you thought that heads would be the best option for your coin toss (either as a leisure game or to decide something). If you want to acheive your end on posting on an internet forum, you still have to economize and choose among the means you have available. You could drive down to an internet caffe, you could use your old computer in the basement, etc etc. Even sitting on the ground or standing while you surf the web is an option, but they are clearly inferior. You could technically even bring a chair from downstairs upstairs to your computer and type. But alas, you sit on your normal computer chair with your best computer and go on Mises. You preferred that to your other alternatives.

I don't see how any of this constitutes an argument against indifference analysis, I mean, you'd have to prove that indifference doesn't exist at all in order to argue against indifference analysis. Indifference analysis is an analytical and pedagogical tool, and personally I find it quite useful. Somebody said that they don't understand how people choose according to indifference analysis and the answer is quite simple, for a given budget constraint there is (usually) only one choice they could make.

While Austrians might say indifference can exist in someones mind (before they make an action), and even is needed to inorder to create a supply of a good, generally Austrians deny that indifference can exist in action. Once an individual acts towards one alternative, then they are no longer indifferent to it compared to other alternatives. If an individual picks a basket with 9 bikes and 5 oranges intead of 8 bikes and 6 oranges, then an individual prefers basket A to basket B. If an individual was "trully" indifferent, then it couldn't choose either of them and would do something else.

Re: Robert Nosick's criticism of Austrianism and Indifference

EconomistInTraining — Tue, 17 Aug 2010 17:17:56 GMT

I don't see how any of this constitutes an argument against indifference analysis, I mean, you'd have to prove that indifference doesn't exist at all in order to argue against indifference analysis. Indifference analysis is an analytical and pedagogical tool, and personally I find it quite useful. Somebody said that they don't understand how people choose according to indifference analysis and the answer is quite simple, for a given budget constraint there is (usually) only one choice they could make.

Re: Robert Nosick's criticism of Austrianism and Indifference

Graham Wright — Mon, 16 Aug 2010 23:00:27 GMT

This dilema has posed quite a problem to me for some time.

Me too. I still feel as though Hoppe has the right answer. While Block's defense may not be wrong, I think his defense is not needed, given Hoppe's.

Tossing a coin is a better example because it removes the issue of accessibility. So the question we ask is: why did you choose Heads?

Block would say that although you were indifferent before the action, at the moment you called Heads, you considered Heads and Tails to be two different goods, and valued one over the other, for some reason. What reason? Who knows? Is Heads slightly easier to say than Tails??!! This is indeed weird and cumbersome.

Hoppe would say that the question doesn't really make sense, since "choosing Heads" was not the actual action, i.e. not the preferred description of the action. The preferred description was "choosing Heads or Tails". The reason for this action was to try to win a coin-toss; simple. So to the question "Why choose Heads?", the answer is "Because this will enable me to achieve my end of choosing Heads or Tails".

Is this skirting the issue? I don't think so, because it is very easy to ask a question by giving a non-preferred description of an action, and getting an answer similar to this. For example, the preferred description of the action I am doing right now is posting in an internet forum. Ask me why I am doing this and you will get a meaningful, interesting answer. Ask me why I am sitting at my desk, or why am I pressing buttons on a keyboard, or why I am looking at a computer screen, and the answer will be "Because they are means to enable me to achieve my end of posting in an internet forum."

What this means (I think) is that we don't need to think in terms of goods going from homogenous to heterogenous at the moment of action (although it may be useful to think of it that way), we just need to make sure that are using preferred descriptions of actions.

I don't really think its a problem if indifference is a psychic phenomenon, because utility and value scales are also psychic phenomenons.

Utility itself is implied by the action axiom. Value scales arise because of the assumption of diversity among humans and environments. Indifference arises because humans tend to think in terms of goods, of various objects having equal serviceability to them. This is another assumption we must make, I believe, if we are to begin discussing "supply" and "demand".

Re: Robert Nosick's criticism of Austrianism and Indifference

Lagrange multiplier — Fri, 13 Aug 2010 21:16:35 GMT

Indifference has sexy curves.

Re: Robert Nosick's criticism of Austrianism and Indifference

BlackNumero — Thu, 12 Aug 2010 04:08:03 GMT

I gave O'Neill's paper a quick read, and I still think he skirts the issue and somewhat redefines traditional Austrian economic points. The problem that I've always had with indifference (and something that plagued me when trying to think about it) is that it doesn't really answer the question as to why something was chosen. Even O'Neil dismisses the notion to some other field of science, saying:

"Lest there be any possible misunderstanding, it is important to note that the non-strict preference approach, resting on the praxeological
interpretation of indifference, does not explain why the actor chooses the particular equally optimal action that is chosen. However, it does explain the fact that one of the equally optimal actions will be chosen, and that this necessitates some selection between the equally optimal actions. Under this view, the particular choice from among equally optimal actions is a matter that is outside the domain of praxeology and economics. It is an economically irrelevant choice in that it does not affect any of the satisfactions anticipated to be gained from action. The explanation of the particular choice from among equally optimal actions, if such is thought to be necessary at all, must arise from some other source, whether this is psychology, neuroscience, or some other field."

Which doesn't seem to answer the question at all and banishes it to some other field of science. If an individual is in a grocery store and wants to buy a box of "Cheerios", and then goes to the section where the Cheerios are, and sees "Cheerios on the left" and "Cheerios on the Right", he still will pick one, implying differing degrees of servicability, and hence different goods. But then the subjective notion of a good changes and now he has "Cheerios in his shopping cart" or just "Cheerios" in his mind. Although the approach is cumbersome and can imply ever-changing notions of a good, I think its the only way that the problem can be directly handled. The idea of a "good" is something that is in the actor's mind and can easily change minute by minute.

Also, even though indifference is a "psychic phenomenon" much in the same way "utility" and "value scales" are, I don't think that the Law of Marginal Utility isn't a praxeological concern now. Rothbard does leave out the notion of choice when describing the diminishing utility rankings of horses, saying that an individual sucessively finds one horse, then another, and then another. When talking about increasing utility rankings, the decrease in supply is from something that happened to the units (a horse died?) and now the individual shifts the horse in the sixth end to the higher ranked ends.

I wonder if Rothbard ever directly encountered Nosick's critcism.

Re: Robert Nosick's criticism of Austrianism and Indifference

Tex2002ans — Wed, 11 Aug 2010 19:29:52 GMT

Also relevant to this discussion is this paper by Ben O'Neill, "Choice And Indifference: A Critique of The Strict Preference Approach":

http://mises.org/journals/qjae/pdf/qjae13_1_4.pdf

Re: Robert Nosick's criticism of Austrianism and Indifference

BlackNumero — Wed, 11 Aug 2010 18:20:06 GMT

"If both the left and right water holes are equally atractive, and he can find no reason for preferring one or the other, the ass or the man will allow pure chance, such as a flip of a coin, to decide on either one. But on one he must and will decide." (MES 310).

In the end, you act towards whatever scenario tails entailed (pun intended :) ). You prefer scenario T to scenario H. If not, then you would have flipped the coin again hoping for a heads or just picked the heads.

Re: Robert Nosick's criticism of Austrianism and Indifference

Sieben — Wed, 11 Aug 2010 17:39:06 GMT

I don't know why its never used be a better example of indifference is calling a coin flip. When I said "tails" i don't really prefer tails, i just want to make a choice. This is what I prefer.

Re: Robert Nosick's criticism of Austrianism and Indifference

BlackNumero — Wed, 11 Aug 2010 17:15:35 GMT

(I can't quote for some reason, but I am quoting Sieben)

This dilema has posed quite a problem to me for some time. Although I find Block's answer a somewhat weird and cumbersome approach, it is really the only logical and bulletproof way to think about the problem. Austrians have really only three direct answers to Nozick's challenge, either they accept indifference entirely (clearly a loss and againist major tenets of Austrianism), except indifference when choosing between the "same good" (skirting the issue), or maintain indifference in only the psychic realm and that every action can only express differing preferences.

At first I was convinced that individual's could be indifferent in choosing between goods they considered the same commodity. Although this approach somewhat settles the matter nicely, it can't really defend itself well. Take the individual above who is at a clothing store and picks the top sweater off of a pile. He may consider all the sweaters homogenous but when the action occured he picked the sweater off of the top pile. But if he was indifferent between them all, why did he pick the top one? If he was truly "indifferent" between them he would stand there and not pick any of them, but in the end he picks one. The top sweater was closer to him and therefore a different good because it didn't have the same servicability as the others. It was closer and had a different subjective use in terms of getting the sweater off the table and into the actors cart. If the individual then decides to buy two sweaters (at the price it can buy two on its "demand curve") it takes another sweater off and then puts them both in his cart, now the sweaters are "sweaters in the cart" and the actor will be indifferent between them until a choice is made to deal with them (but of course their value is different according to the Law of MU). I think the best way to think of a homogenous supply of goods, as Sieben puts it, is "goods floating side by side in our heads".

I don't really think its a problem if indifference is a psychic phenomenon, because utility and value scales are also psychic phenomenons.

Re: Robert Nosick's criticism of Austrianism and Indifference

Sieben — Wed, 30 Jun 2010 00:24:10 GMT

trulib:
Well what I mean by a real category is that people must really think of things in terms of interchangeable units. If they didn't, then the term 'supply' wouldn't make any sense.

Relatively interchangeable. The sweater at the store is different from the sweater at the factory, because it is less accessible to consumers. When we think about one sweater being as good as any other, we basically imagine them floating in our heads side by side. This is never the case in real life.

trulib:
You are defining it as a homogenous class of goods, which is the same thing. So maybe I misunderstood what you meant by convenient abstraction.

Yes we agree. By convenient abstraction I meant that most things do not fit into a homogenous class of goods from the consumer's standpoint, if only because a good's physical location is important.

trulib:
So indifference only applies before the action took place, so is out of scope of praxeology.

Well yes its psychological. It is beyond praxeology to tell us what/when our indifference and utiltity are, but can still deal with them abstractly.

trulib:
It does seem rather ad hoc to emphasize differences in accessibility, and to consider a homogenous set of goods suddenly "heterogenized" when a choice is made to take one unit and not another. I don't think this is necessary.

It is ad hoc only because our agent is reasoning ad hoc. If I were really determined to always have consistent commodity categories, I wouldn't say "I'm going to buy a sweater!" i'd say "i'm going to buy a sweater that is on top of the pile!". But this is verbose.

trulib:
The fact that I picked up the one on top of the pile merely reflects me trying to minimize the costs of the action, not a reflection of me suddenly considering the goods heterogenous.

So you would deny that a good's accessibility has an impact on its status as a member of a commodity?

Re: Robert Nosick's criticism of Austrianism and Indifference

nirgrahamUK — Wed, 30 Jun 2010 00:01:18 GMT

>>The act of "picking up a blue sweater" or "picking up the sweater on the top of the pile" is just not what Hoppe calls a 'preferred description' of the action

I think rather that Hoppe's point is that it may or may not be. When someone is picking up some particular sweater, you don't have access to the 'preferred description' of the action that involves that observed behaviour in quite the same way as when you specify a preferred description when you pose a hypothetical scenario.

Re: Robert Nosick's criticism of Austrianism and Indifference

Graham Wright — Tue, 29 Jun 2010 23:24:28 GMT

Well what I mean by a real category is that people must really think of things in terms of interchangeable units. If they didn't, then the term 'supply' wouldn't make any sense. So we wouldn't get very far in economics without assuming that people do really think in terms of different objects being of equal serviceability, i.e. without the concept of indifference. I am using the term commodity to mean "a set of goods with equal serviceability from the point of view of the actor". Hence I call it a real category. You are defining it as a homogenous class of goods, which is the same thing. So maybe I misunderstood what you meant by convenient abstraction.

So Block would say that when I made a choice to go to the shop and get a sweater, I was considering sweaters as a homogenous class of goods. Then when I get to the shop, suddenly sweaters stop being a homogenous class of goods, and I differentiate them based on their accessibility, choosing the top one. So indifference only applies before the action took place, so is out of scope of praxeology. The fact that I picked that particular sweater was because it was the one on top, hence I was no longer considering all the sweaters to be homogenous at the moment I picked one up.

Hoppe would say that I was considering the pile of sweaters to be comprising a homogenous set of goods throughout the action, even while picking up one of them.

It does seem rather ad hoc to emphasize differences in accessibility, and to consider a homogenous set of goods suddenly "heterogenized" when a choice is made to take one unit and not another. I don't think this is necessary.

The act of "picking up a blue sweater" or "picking up the sweater on the top of the pile" is just not what Hoppe calls a 'preferred description' of the action; the preferred description is "picking up a sweater" since this captures the essence of the action and its purpose, and leaves out details that were insignificant from the point of view of the actor; i.e. that which the actor was indifferent about. The fact that I picked up the one on top of the pile merely reflects me trying to minimize the costs of the action, not a reflection of me suddenly considering the goods heterogenous.