Tuesday, July 24, 2012

Individuals Have Preferences - Robert P. Murphy

Besides the (obvious) point that an action requires an actor, we can draw further deductions. When we say that an individual performs a purposeful action, we mean that he has a purpose or a goal in mind. Remember, we don’t say that the baseball “wants to fall back to the ground.” But we would say, “The pilot landed the helicopter because he wanted to use the bathroom.”
So we see that when we discuss purposeful, intentional actions by others, we are implicitly saying that they have opinions or desires about how the world should unfold. In economics, we use the word preferences to describe these feelings; people act the way they do because they prefer the world to unfold one way, rather than another. For example, when we say, “Bill drank the soda because he was thirsty,” we are automatically also saying (even if we don’t speak the words), “... and Bill prefers to not be thirsty.” After all, it wouldn’t make much sense to say, “Bill drank the soda because 2+2=4.” The reason it does make sense to say, “Bill drank the soda because he was thirsty,” is that we can read between the lines, as it were, and fill in the unspoken claim that Bill is unhappy with his condition of being thirsty.
As you may have noticed, there is another unspoken truth that is packed into our simple statement about Bill’s chugging of the soda. When we decide to classify his behavior as a purposeful action, we are also deciding that Bill himself must believe that drinking soda can relieve thirst. After all, if a case of soda fell out of an airplane into a primitive village, the people who discovered it might have no idea that puncturing the hard shells and pouring the dark liquid into their mouths would relieve the unpleasant feelings of thirst. (And they certainly wouldn’t realize how much it would rot their teeth.) Instead, they might consider the cans sacred (since they fell from a giant flying object that they had never seen before), or their musicians might incorporate them into other forms of purposeful action, having nothing to do with thirst.
It’s important to realize that a person’s beliefs can be wrong, and yet still motivate a purposeful action. For example, if we went back in time and observed doctors in the 1800s placing leeches on patients, we would say, “They are doing that on purpose, because they prefer the patients to be healthy rather than sick, and because they believe that blood-letting is an effective treatment.” (On the other hand, someone armed with more accurate medical knowledge might place leeches on his enemy because he prefers him to be weak and he believes that drawing away blood will achieve this goal.)1
We will develop the point more fully in the next lesson, but here we mention that people use parts of the world in order to achieve their goals. Philosophers describe this by saying people use means to achieve their ends. Economists describe this by saying people use goods and services to satisfy their preferences.

Lessons for the Young Economist

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