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    Do We Do Everything To Maximize Our Own Utility?

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    Ijahss Journal
    This paper discusses whether or not we as humans are naturally wired to behave in ways that maximize our own utility. Utilitarianism has long been defined by philosophers and classical economists alike, with the utility maximization rule stating that the last dollar spent on each product yields the same amount of extra marginal utility. In this paper, human actors are shown not to maximize their own utility, especially within the rising field of behavioral economics; in turn, the concept of util

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    Do We Do Everything To Maximize Our Own Utility?

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    This paper discusses whether or not we as humans are naturally wired to behave in ways that maximize our own utility. Utilitarianism has long been defined by philosophers and classical economists alike, with the utility maximization rule stating that the last dollar spent on each product yields the same amount of extra marginal utility. In this paper, human actors are shown not to maximize their own utility, especially within the rising field of behavioral economics; in turn, the concept of util

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    This paper discusses whether or not we as humans are naturally wired to behave in ways that maximize our own utility. Utilitarianism has long been defined by philosophers and classical economists alike, with the utility maximization rule stating that the last dollar spent on each product yields the same amount of extra marginal utility. In this paper, human actors are shown not to maximize their own utility, especially within the rising field of behavioral economics; in turn, the concept of util

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    34 views3 pages

    Do We Do Everything To Maximize Our Own Utility?

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    Ijahss Journal
    This paper discusses whether or not we as humans are naturally wired to behave in ways that maximize our own utility. Utilitarianism has long been defined by philosophers and classical economists alike, with the utility maximization rule stating that the last dollar spent on each product yields the same amount of extra marginal utility. In this paper, human actors are shown not to maximize their own utility, especially within the rising field of behavioral economics; in turn, the concept of util

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    of 3

    International Journal of Arts Humanities and Social Sciences Studies

    Volume 7 Issue 10 ǁ October 2022


    ISSN: 2582-1601
    www.ijahss.com

    Do We Do Everything to Maximize Our Own


    Utility?
    Yilin (Bob) Wang
    The Taft School

    ABSTRACT : This paper discusses whether or not we as humans are naturally wired to behave in ways that
    maximize our own utility. Utilitarianism has long been defined by philosophers and classical economists alike,
    with the utility maximization rule stating that the last dollar spent on each product yields the same amount of
    extra marginal utility. In this paper, human actors are shown not to maximize their own utility, especially within
    the rising field of behavioral economics; in turn, the concept of utility maximization is proven to not be an
    irrefutable law but rather a mere theoretical framework.

    KEYWORDS: maximization, marginal utility, economics, budget constraint

    I. INTRODUCTION
    Utility maximization is a key element in many theoretical approaches to explaining human behavior in
    classical economics. Developed from the utilitarian philosophers Jeremy Bentham and John Stuart Mill and
    incorporated by early economist Alfred Marshall, the utility maximization rule states that “consumers decide to
    allocate their money incomes so that the last dollar spent on each product yields the same amount of extra
    marginal utility” (Fullerton College). In other words, an assumption in classical economics is that the price
    consumers are willing to pay for a good is reflective of the utility they receive from the good. As such, a
    consumer will achieve utility maximization by consuming a good to the point where marginal utility is greater
    than or equal to the price (Pettinger). However, the core theory of utility maximization does not specify the
    meaning of the utility function (Simon, 1987). Without a concrete definition for utility, the theory’s relevance
    does not uphold in real situations of human behavior, especially with the rise of behavioral economics. In this
    essay, I will demonstrate that we as human actors do not do everything to maximize our own utility – in fact, we
    often make choices that are inconsistent with any utility function and stray away from the principles of classical
    economics.

    II. CARDINAL AND ORDINAL UTILITY


    The concepts of cardinal and ordinal utility further extends the argument that because utility is not
    clearly defined, humans cannot adhere to the utility maximization rule when functioning on a day-to-day basis.
    When utility was first introduced as a concept in the early 1870s, logicians William Stanley Jevons, Carl
    Menger and Leon Walras believed that utility could be measured cardinally. “Cardinal utility” means that a
    specific value or util could be attached to the consumption of a quantity of good – the way one’s height and
    weight could be measured (Salvatore, 2009). In contrast, the concept of ordinal utility, later developed by Pareto
    in 1906, states that it is difficult to give exact values of utility. Instead, it is significant only to ask which option
    is better, but not by how much. Ordinal utility ranks the utility received from consuming goods and takes into
    account an individual’s preferences; for example, an individual who consumes a good like an apple gains utility
    – or satisfaction – but it cannot be measured using metrics like its sugar level or calorie count (Wicksteed &
    Pareto, 1906). Rather, one can order an apple’s utility by preference – e.g. one prefers apples to oranges. Thus,
    the concept of ordinal utility is a limitation of the utility maximization principle in classical economics. Under
    ordinal utility, we as humans cannot make interpersonal comparisons of utility. When we perform utility
    maximization, do we maximize according to utility values that are objective or individual? Say there exists
    $1,000 to hand out – does a rich person value that $1,000 more or less than a poorer person? While some could
    argue that the poorer person presumably has unmet needs and therefore would be more satisfied or achieve
    higher cardinal utility with the dollar, if viewed from the lens of ordinal utility, the answer depends on that
    individual’s preferences. As such, the poorer individual may prefer to live a simplistic life and place a lower

    International Journal of Arts Humanities and Social Sciences Studies V7● I 10 ● 54


    Do We Do Everything to Maximize Our Own Utility?

    value, or ordinal utility, on having that $1,000, compared to a rich person who values money. Thus, depending
    on the perspective and the conflicting definitions of utility, in decision-making, humans may not always be able
    to achieve utility maximization in one way or another.

    III. THE BUDGET CONSTRAINT


    The idea of the budget constraint is that a consumer’s optimal consumption choices are subject to
    whatever his or her spending limits are. Items in the modern day have prices, and consumers only have so much
    money to allocate towards a good or resource. Depending on our desired definition of utility, the budget
    constraint could prevent us from achieving full utility maximization when it comes to restrictions on spending.
    Take the below total utility graph for example (Economics Concepts). Imagine it represents an individual,
    named X; according to the graph, X achieves total maximum utility when he consumes 14 apples per day.
    However, suppose X only has $10 in his budget for apples, and each apple costs $2 to purchase. To achieve the
    maximum total utility in this case, X would have to exceed his budget – this constraint on his spending makes it
    so that he does not achieve utility maximization in the cardinal sense. Additionally, budget constraints are not
    always about money; other examples include a fixed number of hours in a day to perform certain activities, or a
    limited amount of space in one’s home to purchase more goods. The budget constraint could confound the
    definition of utility maximization, as it is not merely about achieving one’s greatest total utility, but rather by
    doing so within one’s confines. At times, the point of satiety on the total utility graph does not represent what
    one would truly do in that given scenario.

    IV. BEHAVIORAL ECONOMICS AND REAL-WORLD SITUATIONS


    With the rise of behavioral economics as a field and new utility measures that follow, it further begs the
    question of whether the traditional assumptions that utility is always maximized can be upheld. An example of a
    new utility measure that confounds one’s utility maximization in the classical sense is social utility seen in game
    theory – where players do not only always act out of self-interest, but also demonstrate concerns about fairness
    and other players (Camerer, 1997). In a 1982 study on the Ultimatum Game, one player (the allocator) was
    given a sum of money and told to split it between himself and an anonymous player (the recipient). The
    recipient could either reject or accept the proposal, in which case both players received nothing. From a
    traditional point of view, the allocator should only offer a token amount, and the recipient should accept any
    offer given. Results from the study, however, demonstrated that many allocators went as far as offering a 50/50
    split, and many recipients also declined their offers when faced with an unfair split (Carnevale & Thorisdottir,
    2005). Thus, this is a prime example of how real human behavior is inconsistent with utility maximization and
    theories of rational behavior in neoclassical economic models.

    As economic actors are assumed to be self-interested and “rational,” individuals are faced with a slew
    of other factors that could affect their ability to seek utility maximizing behaviors. One factor is compulsive
    behavior – resulting in one purchasing goods which are later regretted. According to a study, about 6% of
    Americans were found to be “compulsive shoppers,” who seek instant gratification and later face the
    troublesome consequences of running up debt (Goodwin, 2019).

    International Journal of Arts Humanities and Social Sciences Studies V7● I 10 ● 55


    Do We Do Everything to Maximize Our Own Utility?

    Additionally, the classical and neoclassical paradigms of utility maximization have been found to be unable to
    accommodate morality-governed behavior as well. An optimal consumption plan, which could be compatible
    with a certain utility maximization model, might also be against a rule which prohibits one from taking that
    action (for example, let’s say that consuming an optimal amount of calories via definition of cardinal utility
    conflicts with one’s religion inhibiting oneself from consuming meat) (Isaac, 1997). Essentially, an empirical
    investigation of the methods and standards we use for making decisions in the real world deems models of
    traditional utility maximization difficult to accommodate all of the facets of human behavior.

    V. CONCLUSION
    By taking into account traditional theories operating on the basis of utility’s quantifiable nature, as well
    as more modern definitions of utility, I argue that this elusive concept becomes evidently difficult to maximize
    in a way that satisfies all existing interpretations. At different times, people might behave adhering to one
    definition, whilst failing to satisfy another. Thus, we need not take the concept of utility maximization as an
    irrefutable law explaining and predicting human behavior, but rather as a theoretical framework to assist in our
    collective understanding.

    REFERENCES

    [1] Fullerton College. (n.d.). UTILITY MAXIMIZATION MODEL.


    http://staffwww.fullcoll.edu/fchan/micro/3utility_maximization_model.htm.
    [2] Pettinger, T. (n.d.). Utility maximisation. Economics Help. https://www.economicshelp.org/blog/glossary/utility-
    maximisation/.
    [3] Simon, H. A. (1987). Bounded Rationality. The New Palgrave Dictionary of Economics, 1–3.
    https://doi.org/10.1057/978-1-349-95121-5_472-1
    [4] Salvatore, D. (2009). Microeconomics: theory and applications. Oxford University Press.
    [5] Wicksteed, P. H., & Pareto. (1906). Manuale di Economia Politica, con una Introduzione alla Scienza Sociale. The
    Economic Journal, 16(64), 553. https://doi.org/10.2307/2221479
    [6] Economics Concepts. (n.d.). Total Utility and Marginal Utility. Total Utility (TU) and Marginal Utility (MU).
    https://economicsconcepts.com/total_utility_and_marginal_utility.htm.
    [7] Camerer, C. F. (1997). Progress in Behavioral Game Theory. Journal of Economic Perspectives, 11(4), 167–188.
    https://doi.org/10.1257/jep.11.4.167
    [8] Carnevale, P. J., & Thorisdottir, H. (2005). An Experimental Analysis of Needs in Ultimatum Bargaining. SSRN
    Electronic Journal. https://doi.org/10.2139/ssrn.724231
    [9] Goodwin, N. R. (2019). Microeconomics in context. Routledge.
    [10] Isaac, A. G. (1997). Morality, Maximization, and Economic Behavior. Southern Economic Journal, 63(3), 559.
    https://doi.org/10.2307/1061094

    International Journal of Arts Humanities and Social Sciences Studies V7● I 10 ● 56

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