Monday, October 12, 2015

Block, Edelstein and Wenzel on Demonstrated Preference

The concept of demonstrated preference as used by Austrian school economists is a difficult concept to grasp. It is doubly so for psychologists who are always thinking about the "whys" behind actions.

The following email exchange took place on demonstrated preference between Dr. Michael Edelstein, a psychologist, and Dr. Walter Block, an economist. I joined in toward the end.-RW


---
*From:* Michael R. Edelstein <DrEdelstein@ThreeMinuteTherapy.com>]
>>>> *Sent:* Sunday, September 27, 2015 4:24 PM
>>>> *To:* Walter Block
>>>> *Subject:* Re: Argument>>>>
>>>>
{RW note: Edelstein,a non-smoker, is taking the position of a smoker for the sake of this debate.]
>>>>
>>>> Smoker: I smoke, I say it's bad for me. Am I engaging in a performative
>>>> contradiction?
>>>>
>>>> Walter: No contradiction. When you smoke, you are in effect saying, I
>>>> know this will kill me, but, right now I value the great feeling (or
>>>> whatever I get from smoking) more than that danger.
>>>>
>>>> Smoker: I don't want to smoke, it's killing me. I don't even enjoy it
>>>> anymore.
>>>>
>>>> Walter: If you really didn't enjoy it anymore, you wouldn't smoke. But,
>>>> you do smoke. So, you're lying to youself, or to others.
>>>>
>>>> Smoker: You've restated your argument that I'm smoking because I enjoy
>>>> it. My point is I don't enjoy it anymore. What is your evidence I'm smoking
>>>> because I enjoy it?
>>>>
>>>> Walter: My evidence is that you are smoking! Why on earth would you be
>>>> doing any such thing if the benefits did not outweigh the costs, at least
>>>> ex ante. We are entitled to logically deduce preference from human actions
>>>> (this is basic Ludwig von Mises and all Austrian economists). Now, true, ex
>>>> post, after the fact, you may well come to regret your decision. Heck, you
>>>> could start regretting this right after your last puff. But, from the fact
>>>> that you are now still puffing away, we economists are entitled to infer
>>>> that there is something about this action you like more than not, otherwise
>>>> you wouldn't be doing it.
>>>>
>>>> Smoker: Your assertion is I'm smoking because I enjoy it. Your
>>>> evidence for this assertion is I enjoy it. This is circular reasoning, is
>>>> it not?>>>>>>
>>>>
>>>> Walter: no. my evidence is not that you enjoy it, Mr. Smoker. That is a
>>>> conclusion. Rather, my evidence is that you are still smoking. I only
>>>> infer, conclude, that you enjoy it, more than the costs, or negatives, you
>>>> perceive you will get in the future from smoking. What other evidence could
>>>> there possibly be to demonstrate whether people enjoy things or not?
>>>> Circular arguments assume as correct the very thing under contention. I'm
>>>> not doing that here.
>>>>
>>>> Michael, read this:
>>>>
>>>> Rothbard. Murray N. 1997 [1956]. "Toward a Reconstruction of Utility
>>>> and Welfare Economics." reprinted in "The Logic of Action" Vol. I. Lyme,
>>>> NH: Edward Elgar. pp. 211-254; http://www.mises.org/rothbard/toward.pdf
>>>>
>>>> Then, tell me where Mr. Smoker has a case.
>>>>
>>>> Smoker: I read it and he seems to be saying just what you're saying.
>>>> Suppose I assert "the earth is warming as a consequence of human action."
>>>> My evidence is the earth is warming. Why doesn't your evidence have the
>>>> same logical problem as mine?
>>>>
>>>>  Walter: Michael, please read the Rothbard piece. There's a
>>>> disanalogy. When you eat healthy food, you demonstrate, you reveal, that
>>>> you like healthy food, at least more so than anything else you could have
>>>> been doing at that time, such as smoking, sleeping, running, riding a bike,
>>>> eating bad food, etc. Your assertion about global warming doesn't reveal or
>>>> demonstrate the truth of that claim.
>>>>
>>>> Smoker: I read the Rothbard piece. He seems to be saying just what
>>>> you're saying. Let's set this thread of the argument aside. I think we both
>>>> said what we could say. My other response addresses your earlier question: "Why
>>>> on earth would you be doing any such thing if the benefits did not outweigh
>>>> the costs, at least ex ante." I'm doing it because I'm addicted, I
>>>> can't stop.
>>>>
>>>>  Walter: Addicted, eh? Suppose I offered you $1 trillion to stop.
>>>> Wouldn't you stop? Suppose I threatened to kill your, and/or your loved
>>>> ones, unless you stopped. You'd stop, right!! On the other hand, if you
>>>> believe in determinism, well, then, maybe you're right!
>>>>
>>>> Smoker: What I'm referring to is I can't stop under the ordinary
>>>> incentives I face in my daily life.
>>>>
>>>>  Walter: So, Mr. S, you admit you COULD stop given these extraordinary
>>>> penalties, benefits? Right?  Well, then, you're not addicted; you're just
>>>> making wise short term decisions, but foolish long term ones.
>>>>
>>>> Smoker: Yes, you've proven I'm not addicted, but I can't stop smoking
>>>> permanently. It's like holding my breath. Yes, I can hold my breath, but
>>>> not only for a brief period of time.
>>>>
>>>>  Walter: disanalogy. Holding your breath is DOING something. Not
>>>> smoking is REFRAINING from doing something. I can easily refrain from
>>>> jumping off a tall building, from getting a phd in physics, from running
>>>> the mile in 3 minutes.
>>>>
>>>> Smoker: Not breathing is refraining from doing something. It's
>>>> refraining from breathing, just like not smoking is refraining from
>>>> smoking.
>>>>
>>>> Walter: I still think there's a disanalogy.
>>>>
>>>> Smoker: Is this a better analogy: you lost weight for awhile, but you
>>>> could not maintain it. Similarly, I can't stop smoking forever.
>>>>
>>>> Walter: You COULD stop smoking. I COULD lose weight. But we each CHOOSE
>>>> not to do so, because we rate the short term benefits of eating/smoking, as
>>>> higher than the long term benefits of refraining
>>>>
>>>> Smoker: If you believe you can't do x you won't try even if the reality
>>>> is you can do it. People believe and act on false beliefs regularly. By not
>>>> quitting I'm acting on my belief which trumps any cost-benefit
>>>> calculations.
>>>>
>>>> Walter: Good point, Mr. Smoker.
>>>>
>>>> Smoker: You began this discussion (see your 1st entry above) by saying
>>>> "No contradiction." yet you just agreed cost-benefit analyses has been
>>>> trumped. Which is it?
>>>>
>>>>  Walter: Sorry, I've had enough of this. Uncle! I give up.
>>>>
----------------------------------------------
>>>> *From:* Michael R. Edelstein [mailto:DrEdelstein@ThreeMinuteTherapy.com
>>>> <DrEdelstein@ThreeMinuteTherapy.com>]
>>>> *Sent:* Sunday, September 27, 2015 5:35 PM
>>>> *To:* Walter Block
>>>> *Subject:* Re: Argument
>>>>
>>>>>>>>
>>>> This is an exciting discovery. It's original thinking  and a possible
>>>> disproof of the Austrian concept of demonstrated preference.
>>>>>>>>
>>>>>>>> I'm not absolutely convinced I'm correct, but it deserves further
>>>> study. May I publish it?
>>>>
-------------------------------------------

On Sep 27, 2015, at 3:35 PM, Walter Block <
>>>> walterblock@business.loyno.edu> wrote:
>>>>
>>>>
>>>>
>>>>
>>>> Yes, by all means.
>>>>
>>>>
>>>> Walter E. Block, Ph.D.
>>>>
-----------------------------------------------

>>>> *From: *"Michael R. Edelstein" <DrEdelstein@ThreeMinuteTherapy.com>
>>>> *Subject: **Re: Argument*
>>>> *Date: *September 28, 2015 at 5:24:52 AM PDT
>>>> *To: *Bob Wenzel <rw@economicpolicyjournal.com>
>>>> *Cc: *Walter Block <walterblock@business.loyno.edu>
>>>>
>>>> Bob,
>>>>
>>>> Walter gave his ok to publish my "disproof" of the Austrian concept of
>>>> demonstrated preference. Does it make sense to you? (Please don't publish
>>>> it until we discuss further.)
>>>>
>>>> It's in the form of a dialogue between Walter and me. I called myself
>>>> "Smoker" since I used smoking as the context for the argument.
>>>>
>>>> Warm regards, Michael

------------------------------------------------------------

 On Oct 9, 2015, at 4:28 PM, Robert Wenzel <rw@economicpolicyjournal.com>
>>> wrote:
>>>
>>> Michael would you view your position differently if instead of Walter
>>> and you saying smoker "enjoyed" smoking, it was said that he "valued"
>>> smoking over the alternative? He may hate that he is smoking, but stopping
>>> must in some way be worse or he would stop.
>>>
>>> *---*
>>> *Robert Wenzel*
>>> *Editor & Publisher*
>>> *EconomicPolicyJournal.com* <http://economicpolicyjournal.com/>
>>> *San Francisco, CA*

---------

Dear Bob:

Good point.

Best regards,

Walter
--------------------------------------------------------

On Oct 9, 2015, at 10:38 PM, Michael R. Edelstein <
>>> dredelstein@threeminutetherapy.com> wrote:
>>>
>>> Bob,
>>>
>>> No, value vs. enjoy makes no difference to the smoker's fundamental
>>> belief that he can't stop (it's out of his power to stop). He smokes
>>> because he believes he can't stop, even though he values avoiding lung
>>> cancer more than he values his smoking pleasure.
>>>
>>> Warm regards, Michael
>>>
------------

 On Oct 11, 2015, at 10:00 AM, Robert Wenzel <rw@economicpolicyjournal.com>
>> wrote:
>>
>> Michael,
>>
>> I believe we are getting to the heart of the discussion. For an Austrian
>> economist, revealed preference is just that. Preference revealed by
>> actions. The economist, from the Austrian perspective, does not consider
>> the "whys" behind the action. Just that people act based on valuations.
>>
>> It is your realm, that is the realm of the psychologist, to examine
>> whether a person believes "he can't stop."
>>
>> The economist is silent on what causes a person to act and only
>> recognizes that rankings are going on. If a person is aware that smoking
>> causes cancer and still smokes, then the Austrian only sees that at the
>> instant he is smoking  he prefers smoking on his valuation scale to not
>> smoking because of the threat of lung cancer down the road.
>>
>> Whether, he prefers this because he doesn't care about the long-term
>> future consequences versus immediate pleasure or because he feels "he can't
>> stop" or because  God is whispering into is ear to smoke, is not the
>> purview of the economist. It is your purview as a psychologist. The paths
>> of the economist and psychologist really do not cross here.
>>
>>
>>
>> *---*
>> *Robert Wenzel*
>> *Editor & Publisher*
>> *EconomicPolicyJournal.com* <http://economicpolicyjournal.com/>
>> *San Francisco, CA*
------------------------

Dear Bob:

Beautifully stated. Precisely!

Best regards,

Walter

--------------------------------------------

 On Mon, Oct 12, 2015 at 5:56 AM, Michael R. Edelstein <
> DrEdelstein@threeminutetherapy.com> wrote:
>
>> Bob,
>>
>> You wrote: a)"The economist is silent on what causes a person to act"
>>  and you also wrote: b)"at the instant he is smoking he prefers smoking on
>> his valuation scale to not smoking because of the threat of lung cancer
>> down the road."
>>
>> Why are not these 2 statements contradictory? Isn't the economist loud
>> and clear, not silent, on what causes a person to smoke, that he prefers
>> smoking on his valuation scale to not smoking because of the threat of lung
>> cancer down the road?
>>
>> Michael

------------

On Oct 12, 2015, at 7:23 AM, Robert Wenzel <rw@economicpolicyjournal.com>
> wrote:
>
> Actually, my full quote is, "*If* a person is aware that smoking causes
> cancer and still smokes, then the Austrian only sees that at the instant he
> is smoking  he prefers smoking on his valuation scale to not smoking
> because of the threat of lung cancer down the road."
>
> I have entered the *assumption* that a person is aware smoking
> causes cancer, only to show that from and economists perspective
> demonstrated preference shows that a person may choose smoking over the
> possibility of getting cancer later. It is just two valuation rankings for
> the economist and says nothing about *why* a person would want to rank
> one over the other in *either direction*.
>
> For the psychiatrist, this why may be of significance, but not to the
> economist since he only studies rankings of acting man and not what causes the
> rankings.
>
> *---*
> *Robert Wenzel*
> *Editor & Publisher*
> *EconomicPolicyJournal.com* <http://economicpolicyjournal.com/>
> *San Francisco, CA*
------

On Mon, Oct 12, 2015 at 11:58 AM, Michael R. Edelstein <
DrEdelstein@threeminutetherapy.com> wrote:

> Thanks for your persistence, I think I get it. Perhaps my difficulty lies
> in being stuck in a psychologist's mindset.
>
> I haven't considered this before, but it also may explain why I find
> Austrian economics more difficult to understand than I do libertarianism.
>

7 comments:

  1. My dad smoked for 5 years after having had half a lung removed due to lung cancer. He smoked until the day he died. He preferred smoking to the cravings he experienced when he wasn't smoking.

    ReplyDelete
  2. My father smoked for fifty years or so -- from when he was sixteen until he was almost seventy. Then one day he just got up, lit a cigarette, and decided he didn't want it. Never smoked again since.

    ReplyDelete
  3. "Why are not these 2 statements contradictory? Isn't the economist loud
    >> and clear, not silent, on what causes a person to smoke, that he prefers
    >> smoking on his valuation scale to not smoking because of the threat of lung
    >> cancer down the road?"

    The economist is silent about why the smoker prefers / values smoking, not about the fact that the smoker prefers smoking.

    The smoker sleeps at some point, so it is physically possible for him to stop.

    To say that the smoker values some other action than smoking in the moment he smokes is a contradiction. If he valued not smoking in that instance, he would not smoke.

    ReplyDelete
  4. I see Edelstein's point. It is a good one. I hope he digs deeper into his discomfort with demonstrated preference. I hope he becomes better able to articulate it. I feel Block and RW are missing his point.

    People do have freedom of choice how to act. But to use this fact as a basis to make inferences about what a person values based on his actions is impossible precisely because the economist cannot have any insight into what a person is actually valuing when he decides to act. Action demonstrates a man has preferences of some kind. But gives no indication what he has preferences for.

    Say a committed non-smoker who hates smoking is ordered to smoke a cigarette by a person holding a gun to his head. If he chooses to smoke the cigarette, can we make any inferences about how much he values smoking? No, because the decision to smoke or not is actually hinging on other factors he is ranking, namely living vs. dying. And we can't even say that because maybe he prefers getting shot in the head to smoking, BUT he has a young daughter to support, so it is her well-being he is weighing versus smoking.

    It is because Austrianism is unable to know what this man is actually comparing to reach his decision to act that it cannot say anything about his value preferences. His decision to act yields exactly 0 usable information. We know he values some things over other things, but we can't say what things he values over which. If this man chose to smoke the cigarette in this situation, we can't say he values smoking over non-smoking. We can only say that he values the entire bundle of consequences that comes with smoking more than the bundle that comes with not smoking. Which isn’t saying anything, because we don’t know what’s in the bundles. So this isn’t useful knowledge. We can’t infer anything from it.

    Austrianism attempts to make specific inferences about value rankings presuming "all else is equal." But all else is never equal. Even a man choosing vanilla ice cream over chocolate ice cream may be actually comparing childhood associations with each. Or moods he is in given times of day. Or subconscious compulsions to try new things and become a more adventurous spirit so he can be more attractive to women, a sore spot in his life. These are all things that have nothing to do with the properties of vanilla or chocolate ice cream, and could reverse the choice of flavor moments later. Even as he chooses vanilla, we cannot declare he ranks vanilla ice cream over chocolate ice cream in that moment because we don't know what he's actually comparing in taking the action to choose vanilla.

    You can't say anything about the rankings of an acting man if you don't know what he is ranking. And it is impossible to know what a man is ranking when he takes an action. Austrianism is unjustified in its claims it can infer people’s rankings based on their actions.

    ReplyDelete
    Replies
    1. Re: sonepatchworth

      ─Say a committed non-smoker who hates smoking is ordered to smoke a cigarette by a person holding a gun to his head. If he chooses to smoke the cigarette, can we make any inferences about how much he values smoking?─

      No economist can make an inference about how MUCH a person values smoking even if there was no threat, only that a person values one thing more over another if given the choice.

      ─Austrianism attempts to make specific inferences about value rankings presuming "all else is equal."─

      Even in science, you isolate all variables so you can focus on one.

      ─But all else is never equal. Even a man choosing vanilla ice cream over chocolate ice cream may be actually comparing childhood associations with each. ─

      But you're equivocating. A ceteris paribus test is not meant to isolate motives but choices. If a person chooses vanilla over chocolate, the inference is that, at that moment, the person preferred vanilla over chocolate.

      Delete
    2. "No economist can make an inference about how MUCH a person values smoking even if there was no threat, only that a person values one thing more over another if given the choice."

      And I'm saying an economist cannot even determine if a person values one thing over another. Because the economist can't know what the person is actually valuing when he chooses.

      "Even in science, you isolate all variables so you can focus on one."

      My point is you can't isolate the variables here. Pretending as if you can is senseless. The variables are actually what is responsible for the outcome of the decision in some inscrutable way.

      "If a person chooses vanilla over chocolate, the inference is that, at that moment, the person preferred vanilla over chocolate."

      My point is he very well may not prefer vanilla over chocolate. An action to choose vanilla may reflect a preference unrelated to ice cream flavor. For example, the current trendy association between fashionable people being more low key, and the man's subconscious belief that vanilla is more low key and hope the cute ice cream girl will be impressed. Even though he actually prefers the taste of chocolate ice cream.

      That he chose vanilla reflects that he values looking cool more than tasty ice cream. But an Austrian economist can't know that. The man himself may not even know it. The Austrian would mistakenly declare this man must prefer vanilla ice cream to chocolate ice cream. But that's false. The truth is the man prefers the package deal of associations and consequences of ordering vanilla ice cream in that particular moment over those of ordering chocolate. The latter statement is completely uninformative and does not allow anything to be ranked against anything. The Austrian mistakenly thinks he has uncovered information, when he has not.

      Delete
  5. I have had a long running feud with the loathsome “Lord Keynes”. This week, he critiqued Walter Block’s speech “Walter Block’s An Austrian Critique of Mainstream Economics”:

    http://socialdemocracy21stcentury.blogspot.com/2015/10/walter-blocks-austrian-critique-of.html

    It is important to keep in mind that “Lord Keynes” does not understand and does not want to understand economic calculation (sound familiar?). In fact, he has expressly denied that there is any relationship in Austrian theory itself between the problems of socialist calculation and the problems of Keynesian and funny money calculation.

    A single comment by Ken B (who, BTW, has been banned by Bob Murphy) stated:

    Excellent post LK. Trading a pen for a tie is a behavioral proxy for a presumed underlying preference. Since behavior can have many causes, is conditioned on states of knowledge, and implicates many presumed underlying proclivities no apodictic conclusion can be drawn from it. Behaviour is a useful source of inference not a proof.

    Before playing the video and before the instant exchange with Dr. Edelstein, was posted, I drafted a proposed reply to Ken B which I did not post:

    Of course, that is why Austrians emphasize economic calculation. All you can really know about an exchange are its terms, which comprise its objective manifestation. The underlying reasons for the exchange are guesswork.

    The objective manifestation of an exchange can be seen, photographed and recorded. The ultimate and detailed motivations cannot. These are two different types of phenomena. A and B. However, I still think it is quite accurate to broadly state that people “act” in the Misean sense because they place the highest priority upon that action at that moment. It is a very limited statement and does not preclude seeking a detailed answer as to “why” they did so which is a different issue and part of the B analysis.

    Query: Why aren’t “economists” concerned about ultimate motivations at some point in the analysis? The essence of the ABCT is that people are misled by the objective manifestation of distorted prices induced by funny money. Further, just as one must differentiate between an exchange free of intervention and one subject to intervention, is it not essential to differentiate between “demand” that is the result of properly acquired assets and “demand” that is the result of the theft of others’ purchasing power via funny money? These seem like empirical questions while keeping in mind that “testing” human behavior is not the same as “testing” projectile flight.

    Finally, I maintain that the true brilliance of Keynes was to obliterate the concept of private property by using the term “aggregate demand”. AD does not differentiate between “demand” derived from properly acquired assets and “demand” resulting from stolen purchasing power.

    ReplyDelete