A return trip

Alex Tabarrok of Marginal Revolution shares a personal anecdote of how economic reasoning allowed him to behave ?rationally? and make a better economic decision for himself.

Although Alex portrays his thought processes as an objective, rational utility-maximizer, there is nothing about his episode that falls outside the praxeological framework, and in fact, it illustrates the subjective theory of value. All potential states of satisfaction are ranked on an individual?s value scale and those actions that are expected to achieve the highest ranked state are pursued. However, the rankings are constantly reshuffled as the environment changes, personal preferences are altered, and time passes.

Alex?s second trip to the store was simply a reappraisal of his circumstances at that time, and based on his own subjective preferences, he decided to take action to go back to the store. It was Alex?s belief in a particular form of economic analysis - that he should in fact be a utility-maximizer - which resulted in a re-ordering of his subjective states of satisfaction that resulted in the action taken to go back to the store. It was Alex?s subjective preference to have acted in accordance with his belief, not the details of the belief itself, that was the determining factor.

Share this

Uhhh, did he really portray

Uhhh, did he really portray it as objective? He said "rational utility maximizer" I don't see that as being equivalent to being objective. After all, the utility function even in neoclassical theory is a wholly subjective construct.

Steve, Read it again. "...It

Steve,

Read it again.

"...It occured to me, however, that my earlier trip was a sunk cost. If the trip was worthwhile the first time it must be worthwhile to return (not so much time had passed as to change the utility of the calculation). I still felt frustrated and I didn't really want to return but I forced myself to behave like a rational utility maximizer...."

He is certainly trying to avoid a subjective decision.

That aside, his assumption that the second trip was an equivalent choice to the first is also faulty. The first trip has resulted in an expenditure of both gasoline and leisure time. From the law of diminishing marginal utility both gasoline and leisure time will have a higher marginal utility when making the choice for the second trip than they did for the first.

Regards, Don