Path: utzoo!censor!geac!torsqnt!news-server.csri.toronto.edu!cs.utexas.edu!sdd.hp.com!wuarchive!bcm!dimacs.rutgers.edu!aramis.rutgers.edu!paul.rutgers.edu!njin!princeton!pucc!PSYCH@TCSVM From: harnad@phoenix.Princeton.EDU (Stevan Harnad) Newsgroups: sci.psychology.digest Subject: PSYCOLOQUY V1 #16 (Discussion Paper: Optimal Utilities/Becker (468 l) Message-ID: <9012050026.AA05240@reason.Princeton.EDU> Date: 4 Dec 90 23:10:43 GMT Sender: VMNNPOST@pucc.Princeton.EDU (Listserv to Netnews Gateway) Organization: Listserv to Netnews Gateway at pucc.Princeton.EDU Lines: 463 Approved: PSYCH@TCSVM PSYCOLOQUY Tue, 4 Dec 90 Volume 1 : Issue 16 Paper: Optimal Utilities, Gordon Becker ---------------------------------------------------------------------- [Editor's Note: This paper has been refereed by a member of Psycoloquy's Editorial Board and has been accepted for "skywriting" discussion. All subsequent discussion elicited on this topic will appear under the heading: "Optimal Utilities/Becker." Comments as well as discussion papers on other topics are invited. All contributions will be refereed.] From: "Gordon Becker" Subject: Paper: Optimal Utilities The following paper argues that human suffering can be eliminated, expected utility maximized, and the basic problems of statistical decision theory avoided, by changing "tastes" (values/preferences) rather than improving "beliefs" (understanding). The paper questions the basic axioms of economics and decision theory. The de-emphasis on intellectual processes challenges the cognitive psychology paradigm, and the emphasis on feelings challenges behaviorism. This change in emphasis blinds many scientists to the logical and empirical content of the paper and their reactions are then based more on emotional and "religious" rather than scientific grounds. The author would like to get a critical discussion of the paper by social scientists who are not restricted by a narrow religious paradigm. OPTIMAL UTILITIES Gordon Becker1 University of Nebraska at Omaha Omaha Nebraska becker@unoma1.BITNET ABSTRACT This paper considers a modification of expected utility theory: Instead of considering only the decision maker's long-range utilities over entire life histories, the decision maker's current short range utilities over limited time-spans are considered, and the action space of the decision maker is expanded to include actions that allow the decision maker to modify hir current short-range utility function. It is shown that there exists an optimal utility function that maximizes expected utility, minimizes decision costs and considerably simplifies the decision making problem. Changing a current, non-optimal, short-range utility function to the optimal may, however, incur such high costs that other actions are preferable. 1. INTRODUCTION The behaviorist position predominate among current day economists and psychologists represents tastes by fixed numbers or fixed distributions that do not vary with time or as a function of the decision situation and are not under even the partial control of the decision maker. Even the procedural rationality advocated by Simon (1982) leaves the decision maker predominately (if not completely) under the control of the environment. The actions considered by the decision maker are essentially actions on the environment which only indirectly impact on the decision maker hirself. Similarly, the multiple "selfs" of the decision models of Arrow and Raynaud (1986) and of Keeney & Raiffa (1976) depend on the context or state of the world as determined by the environment rather than by the decision maker. The tastes in these models are "given" at the start of the problem and the decision maker has no control of what goes on "inside" hir skin. There have been serious objections to these formulations both as descriptions and prescriptions (Becker & McClintock, 1967; Einhorn & Hogarth, 1981; Ellsberg, 1961; Kahneman & Tversky, 1979; Sen, 1982; Simon, 1982; Slovic, Fischoff & Lichenstein, 1977), and a "call" has been made to "open the preferences" (Etzioni, 1985. see also Albanese 1982, 1985, 1987). This "call" has been largely to repair the descriptive flaws in the theory. Although the emphasis in this paper is on the prescriptive side, it is, like Etzioni and Albanese, based on the belief that preferences are modifiable and under at least the partial control of the decision maker. 2. CHANGING PREFERENCES Savage (1954) and von Neumann and Morgenstern (1944) used second-order meta-preferences as the basis for their models. However, the utilities derived in most experimental tests are based on observable, first-order preferences. Thus the term "utility" is used in different senses by decision theorists and experimenters. Stigler and Becker (1977) showed that there was an underlying set of meta-preferences that could account for the changes they found in first-order preferences. They emphasized the stability of the underlying long range utility function, but their results clearly demonstrate that first-order preferences (short range utilities) change. It is well known that in real life, our tastes (utilities) not only change but can be deliberately modified by us and by others. Cigarettes, cigars, beer, wine, liquor and other foods often taste horrible the first time(s) they are consumed ... but with social pressure and the desire to appear "sophisticated" many people continue to use these distasteful products until, with repeated use they became enjoyable (even addictive). Moreover, after acquiring a desire for such products, many people retrain themselves to dislike them when they learn that the product endangers their health. Such sequences of learning to like and then dislike a particular object or experience clearly show that utility can be changed. Decision models that deny the decision maker the opportunity to modify hir own short range utilities (first-order preferences) are not only unrealistic but, as we shall see, eliminate the "most rational" solutions to real-life decision problems. 3. OPTIMIZING TASTES Given a specific decision maker with specific utility function(s) and specific probabilities over outcomes, what change(s) in utility (preference) would increase hir expected utility? If the utility of any possible outcome were increased, that increase would raise the expected utility for the decision maker. The more likely the outcome, the greater the increase in expected utility. Thus if the rank order of the utilities of the outcomes matched the probabilities of occurrence of the outcomes, that ranking would maximize expected utility for that set of probabilities. This result suggests a new corollary to the old maxim that a rational person does not modify hir probabilities (beliefs) to match the desirability of the outcomes. We can now add a new maxim: It is rational to modify one's tastes (preferences) according to one's beliefs (expectancies); and in fact to rank preferences for outcomes according to their likelihood of occurrence. Note that the larger the increase in the desirability of the outcome, the greater the raise in the expected utility. The maximum increase, for a given utility function anchored at the high and low ends, occurs when the utility of an outcome is raised to the same desirability level as the most preferred outcome. This is true for every outcome regardless of its likelihood of occurrence. Thus the maximum expected utility is achieved when the utility of every outcome is raised to the utility of the most desired outcome. No further improvement can be made, given the original anchors. Therefore, for a given set of utility anchors, the optimal utility function is the one in which the utilities of all outcomes are equal to the utility of the outcome that was originally most desired2. When all outcomes have the same utility, another interesting result occurs that is advantageous to the decision maker - There is no need to choose among the available actions since all have the same expected utility. Accordingly, there is no need to compute expected utilities. Nor is there any need to revise expectancies about the likelihood of events or outcomes. In fact there is no need to set up a decision table, collect any information about possible actions and outcomes nor perform any of the information gathering or processing activities usually associated with rational decision making. Thus with optimal utilities, the decision maker avoids all the costs of decision making that accompany rational decisions with non-optimal utility functions. Moreover, a person with optimal utilities creates no problems for others since (s)he is always willing to take whatever action the other(s) decide to be best. No changes in the social welfare function need to be made when (s)he enters or leaves a group, since hir flat function does not change the social welfare function. People with non-optimal utility functions create problems for themselves and for others by making it necessary to engage in costly procedures to revise the social welfare function for any group they join or leave. Thus the optimal utility function not only maximizes utility for the holder, but reduces decision costs for everyone else with whom (s)he interacts. It is desirable both from an individual and societal perspective. Changes in preferences (utilities) generally require time and effort, and not all changes are feasible. The specific costs incurred in changing from one set of preferences to another depend on the individual's ability to modify hir tastes, as well as the specific changes that are to be made. Hence, although the optimal utility function is the best function a person or group can have, changing from a non-optimal to an optimal function may incur such high costs that it may not be the best course of action. Consider an ordinary mortal with such strong likes and dislikes that it would take thirty years of disciplined living, with many frustrations to change hir utilities to the optimal no- preference function, and who might die before completing the change, or so soon after completing it that the thirty year costs outweigh the gains. There is no guarantee to anyone that (s)he will succeed in achieving the optimal function even after long and strenuous effort. Given a limited lifespan and the costs of changing tastes, some people will attain more satisfaction during their life by not trying to change from non-optimal to optimal preferences. Whether one should even attempt to modify the utility function in the direction of aligning utilities with outcome probabilities or increasing appreciation for any outcome thus depends not only on the increase in expected utility but also on the cost of such effort. 4. OTHER CONSEQUENCES OF OPTIMAL UTILITIES The flat utility function that characterizes optimal utilities violates a basic axiom3 of decision theory that there be at least some consequence(s) or act(s) that is (are) preferred. This fifth axiom of Savage (1954) is appropriately referred to as the "nontriviality assumption" (Fishburn, 1975, p292) since without it, as we have seen, any decision is as good as any other in terms of expected utility or risk. However, maximum satisfaction is achieved when one "trivializes" the problem, and hence the fifth axiom of Savage and the fixed preference assumption should be rejected as "irrational" since satisfying them forces the individual to lower hir own satisfaction, increase the costs to others, unduly complicates the decision problem, unnecessarily restricts the decision maker, and generally results in the decision maker experiencing some type of "regret" that could be avoided by a less rigid, more accepting attitude than that required by these two "non-rational" assumptions. The average person's limited ability to maximize von Neumann-Morgenstern expected utility has been interpreted as evidence of man's bounded rationality (Simon 1982), but this failure may be more an indication of our theorists' unbounded ability to invent, employ, or apply needless complexities rather than indications of limited rationality on the part of real-life decision makers. If optimal solutions to decision problems do not require the high powered computing skills dictated by those models, the limitations found in our experiments are not necessarily reflections of "bounded rationality", but rather only bounded "information processing capacity". This type of limitation is much less serious than limited rationality. The fact that the optimal utility function is one in which all outcomes have equal desirability raises ethical problems regarding some of our current practices. For example, the industrial consultant today does not question the value system of hir client nor does (s)he try to get the client to "improve" hir values even though the change in utility function could increase the client's expected utility over that which would result from maximizing hir current utilities. Changing other people's values is considered poor taste in today's world and certainly requires social skills not always associated with expertise in decision theory. What should the industrial consultant do now when (s)he knows that the client does not have optimal utilities? Advertising presents an interesting paradox. On the one hand it increases the desirability of an alternative and thus raises expected utility. However, the increased "desire" for that alternative, lowers the satisfaction associated with present conditions and increases preferences for one brand over another, both of which make the utility function less optimal. The changes brought about by current advertizing practices may well be "dangerous to the mental health" of the consumer, the nation, and the world...today and for future generations. Should such practices be made illegal? Should schools teach everyone to have flat utility functions? Do people have a right to be non-optimal, and to raise their children to have non-optimal tastes? 5. THE FEASIBILITY OF ATTAINING OPTIMAL UTILITIES There is also a question about whether or not it is possible for anyone to attain an optimal (no-preference) function even after long and arduous effort. It so happens that one of the first social scientists in India, Sakyamuni4, while studying "suffering", claimed to have achieved this optimum (Walshe, 1987). He found that suffering is a psychological problem caused by a rejection of realty, by desiring that which does not exist at the moment, by wanting what you do not have, or wanting to get rid of something you do have. He claimed that had ended his own suffering by accepting and appreciating everything as it actually is. Moreover he claimed that anyone could attain that ideal state through a mental training program, "the noble eightfold path", in which the individual learns to be aware and appreciative of reality every changing moment. In the more than 2500 years since Sakymuni's discovery, millions of people in every country of the world have been trained to follow his Eightfold Path, and many claim to have attained optimal utilities. Not everyone who has begun the training claims to have achieved the optimal. And many who claim to have achieved the optimal, have not been recognized as having done so by others. Many find the training difficult and most people do not achieve complete success, but there are many that have completely freed themselves from suffering and hence there is some evidence that the optimal utility function is realizable. It should be noted that Sakymuni Buddha did not establish a religion nor claim that he was any kind of diety. In fact he insisted that his findings be tested by each person and validated by their own experience rather than accepted as revealed truths. Modern texts on personality are devoting more and more space to buddhism (Frager and Fadiman, 1984; Engler, 1990), but most western psychologists continue to ignore eastern psychologies and to equate them with religion, despite the strong praises for their scientific merit by respected western psychologists such as William James (1961), Gordon Allport (1961), and Garner Murphy (1968). In addition to those who have attained optimal utilities by following the Buddhist program, others have been recognized as having achieved such a state through religious and "transpersonal psychology" practices (Mikulas, 1987). Since many people have attained this ideal state, in every culture, in every age, including the present, optimal utilities appear to be a feasible as well as optimal human condition. 6. REFERENCES Albanese, Paul J. (1982). Toward a methodology for investigating the formation of preferences. Unpublished Ph.D. dissertation, Harvard University, Cambridge, MA. __________________ (1985). Comments on Amitai Etzioni's "Opening the preferences A socio-economic research agenda". The Journal of Behavioral Economics. 14, 207-208. ____________________ (1987). The nature of preferences: An exploration of the relationship between economics and psychology. Journal of Economic Psychology 8, 3-18. Allport, Gordon (1961). Pattern and Growth in Personality. New York: Holt, Rinehart, and Winston. Arrow, Kenneth J. & Raynaud, Herve (1986). Social Choice and Multicriterion Decision-Making, Cambridge Mass.: The MIT Press. Becker, Gordon M., Degroot, Morris H. & Marschak, Jacob (1963). Stochastic models of choice behavior. Behavioral Science, 8:41-55. Becker, Gordon M., & McClintock, Charles G. (1967). Value: Behavioral decision theory. Annual Review of Psychology, 18:239-86. Einhorn, Hillel J. & Hogarth, Robin M. (1981). Behavioral Decision Theory: Processes of Judgment and Choice. Annual Review of Psychology, 32:53-88 Ellsberg, Daniel (1964). Risk, ambiguity, and the Savage axioms. Quarterly Journal of Economics. 75:643-49. Engler, B. (1990). Personality Theories. Boston: Houghton Mifflin Co. Etzioni, Amitai. (1985). Opening the preferences: A socio-economic research agenda. The Journal of Behavioral Economics. 14, 183-205. Frager, R. & Fadiman, J. (1984). Personality and Personal Growth. New York: Harper and Row. Fishburn, Peter C. (1975). A theory of subjective expected utility with vague preferences. Theory and Decision, 6:287-310. James, W. (1961). The varieties of religious experience. New York: Crowell-Collier. Hahn, Frank, (1982). On some difficulties of the utilitarian economist, pp 187-198. In Sen, Amartya & Williams, Bernard, (1982). Utilitarianism and Beyond, Cambridge: Cambridge University Press. Kahneman, D. & Tversky, A. (1979). Prospect theory: An analysis of decision under risk. Econometrica, 47:263-91. Keeney, Ralph L. and Raiffa, Howard. (1976). Decisions with multiple objectives: Preferences and value tradeoffs. New York: John Wiley and Sons. Mikulas, William L. (1987). The Way Beyond: An overview of spiritual practices. Wheaton IL: The Theosophical Publishing House. Murphy, G. and Murphy, L. (1968). Asian Psychology. New York: Basic Books. Ramsey, Frank, P. (1931). The Foundations of Mathematics and Other Logical Essays, New York: Harcourt, Brace and Co. Savage, Leonard J. (1954). The Foundation of Statistics, New York: John Wiley. Sen, Amartya (1974). Some debates in capital theory. Economica. 41:328-35. ___________ (1982). Choice, Welfare and Measurement, Oxford: Basil Blackwell Publisher. Simon, Herbert A, (1982). Models of Bounded Rationality. Volume 2. Behavioral Economics and Business Organization, Cambridge Mass: The MIT Press. Slovic, Paul, Fischoff, Baruch & Lichtenstein, Sarah, (1977). Behavioral Decision Theory. Annual Review of Psychology, 28:1-39. Stigler, George J. and Gary S. Becker. (1977). De gustibus non est disputandum. American Economic Review 67:76-90. von Neumann, John, & Morgenstern, Oskar. (1944). Theory of Games and Economic Behavior, Princeton: Princeton University Press. Walshe, Maurice (1987). Thus Have I Heard. Lom Publication Society. 7. FOOTNOTES 1. I am grateful to Steve Evans for his constant encouragement and critical, good natured help. This research was supported in part by the University of Nebraska at Omaha. An earlier version of the paper was presented July 1988 at the Behavioral Economics Convention, San Diego CA. 2. The "satisfaction" for the individual would also increase if the anchors were higher on an absolute scale but consideration of such a change requires psychometric considerations beyound the scope of this paper. 3. Frank Ramsey (1931), John von Neumann and Oskar Morgenstern (1944), and Leonard J. Savage, 1954) assumed not only that the decision maker had a fixed set of preferences, or "utilities", that reflect the "tastes" of the individual, but also that these fixed constants satisfied the strong transitivity requirements dictated by the Weak Axiom of Revealed Preferences (Hahn, 1982; Sen, 1982). 4. The conversation between Sakyamuni and Sabhuti (Sen, 1974) is of questionable origin and should not be used to question Buddha's credentials as a scientist (or economist). "Buddha's" closing statement, as reported by Sen, "And do not think of the fruit of action. Fare forward." has the flavour of the present paper, and the hint of an Oxford-Bostonian accent. ------------------------------ PSYCOLOQUY is sponsored by the Science Directorate of the American Psychological Association (202) 955-7653 Co-Editors: (scientific discussion) (professional/clinical discussion) Stevan Harnad Perry London, Dean, Cary Cherniss (Assoc Ed.) Psychology Department Graduate School of Applied Graduate School of Applied Princeton University and Professional Psychology and Professional Psychology Rutgers University Rutgers University Assistant Editors: Malcolm Bauer John Pizutelli Psychology Department Psychology Department Princeton University Rutgers University End of PSYCOLOQUY Digest ******************************