A lot of rationalist thinking about ethics and economy assumes we have very well defined utility functions - knowing exactly our preferences between states and events, not only being able to compare them (I prefer X to Y), but assigning precise numbers to every combinations of them (p% chance of X equals q% chance of Y). Because everyone wants more money, you should theoretically even be able to assign exact numerical values to positive outcomes in your life.
I did a small experiment of making a list of things I wanted, and giving them point value. I must say this experiment ended up in a failure - thinking "If I had X, would I take Y instead", and "If I had Y, would I take X instead" very often resulted in a pair of "No"s. Even thinking about multiple Xs/Ys for one Y/X usually led me to deciding they're really incomparable. Outcomes related to similar subject were relatively comparable, those in different areas in life were usually not.
I finally decided on some vague numbers and evaluated the results two months later. My success on some fields was really big, on other fields not at all, and the only thing that was clear was that numbers I assigned were completely wrong.
This leads me to two possible conclusions:
- I don't know how to draw utility functions, but they are a good model of my preferences, and I could learn how to do it.
- Utility functions are really bad match for human preferences, and one of the major premises we accept is wrong.
Anybody else tried assigning numeric values to different outcomes outside very narrow subject matter? Have you succeeded and want to share some pointers? Or failed and want to share some thought on that?
I understand that details of many utility functions will be highly personal, but if you can share your successful ones, that would be great.
As I said in my original post, for larger ranges, I like logarithmic-type u-curves better than exponential, esp. for gains. The problem with e.g. u(x)=ln(x) where x is your total wealth is that you must be indifferent between your current wealth and a 50-50 shot of doubling vs. halving your wealth. I don't like that deal, so I must not have that curve.
Note that a logarithmic curve can be approximated by a straight line for some small range around your current wealth. It can also be approximated by an exponential for a larger range. So even if I were purely logarithmic, I would still act risk neutral for small deals and would act exponential for somewhat larger deals. Only for very large deals indeed would you be able to identify that I was really logarithmic.
Unfortunately the better parts of my post were lost - or rather more of the main point.
I posit that the utility valuation is an impossibility currently. I was not really challenging whether your function was exponential or logarithmic - but questioning how you came to the conclusion; how you decide, for instance where exactly the function changes especially having not experienced the second state. The "logarithmic" point I was making was designed to demonstrate that true utility may differ significantly from expected utility once you are actually... (read more)