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> You seem to be assuming that utility ends up being linear in money, so let’s stick with that assumption.

> For a function to convert dollars to utils u($), u'($)>0, u''($)<0

^^^non-linear function^^^

^^^U''($)!=0^^^

[/snark]

That is important, though. The whole point of the thought experiment was that the strictly selfish result (I buy $100 of ice cream) is different from the Kaldor-Hicks/utility efficient outcome (I overpay for a widget) in a situation where my (normally very utilitarian) moral intuition backs the selfish action. Your scenario is only equivalent if you take the U''($)=0 condition which I explicitly rejected.

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[ Question ]

Why is this utilitarian calculus wrong? Or is it?

by EconomicModel

31st Jan 2019

1 min read

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Suppose that I value a widget at $30. Suppose that the widget costs the widget-manufacturer $20 to produce, but, due to monopoly power on their part, they can charge $100 per widget.

The economic calculus for this problem is as follows. $30 (widget valuation) - $100 (widget price) = -$70 to me; $100 (widget price) - $20 (widget cost) = $80 to widget producers. $80 - $70 = +$10 total value. Ordinarily, this wouldn't imply that utilitarians are required to spend all their money on widgets because for a function to convert dollars to utils u($), u'($)>0, u''($)<0 and widget-producers usually have higher $ then widget consumers.

But suppose the widget monopolist is a poor worker commune. The profits go directly to the workers who, on average, have lower $ then I do. It seems like buying widgets would be more moral then, say, donating $80 to the same group of poor people ($80 - $80 = $0) because the widget purchase slightly compensates me for the donation in a way that is greater then the cost of the recipient to produce the widget.

And yet, I feel even less moral compunction to buy widgets then I do to donate $80 to GiveDirectly. Is this just an arbitrary, unjustifiable, subconscious desire to shove economic transactions into a separate domain from charitable donations or is there actually some mistake in the utilitarian logic here? If there isn't a mistake in the logic, is this something that the Open Philanthropy Project should be looking at?

[Question inspired by a similar question at the end of chapter 7 of Steven Landsburg's The Armchair Economist]

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Vaniver

Feb 01, 2019

140

On first-order effects, it seems that your preference rankings as are follows:

1) You have the widget, the commune has $80, your total satisfaction is $30+80x.

2a) You have nothing, the commune has $100, your total satisfaction is $100x.

2b) You have $100, the commune has nothing, your total satisfaction is $100.

3) You have the widget, a monopoly you don't value has $80. Your total satisfaction is $30+80y.

By changing x and y, we represent your altruism to the other parties in the situation; if x is greater than 1, then you would rather give the commune money than have it yourself, but if x is above 1.5 then you'd rather just give the money to the commune than have a widget for yourself. For ys below 7/8ths, you'd rather not buy the widget. (The x and y I inferred from the question are slightly above 1 and slightly above 0, which suggests the best option is indeed 1.)

---

Why do humans have moral intuitions at all? I claim a major role is to represent higher order effects as shorthand. When you see a bike you don't own, you might run the first order calculations and think it's worth more to you than it is to whoever owns it, and so global utility is maximized by you stealing the bike. But a world in which agents reflexively don't steal bikes has other benefits to it, such that the low-theft equilibrium might have higher global utility than the high-theft equilibrium. But you can't get from the high-theft equilibrium to the low-theft equilibrium by making small pareto improvements.

And so if you notice you have moral intuitions that rise up whenever you run the numbers and decide you shouldn't be upset that someone stole your bike, try to figure out what effects those intuitions are trying to have.

---

Why put economic transactions in a separate domain from charitable donations? There are a few related things to disentangle.

First, for you personally, it really doesn't matter much. If you would rather pay your favorite charity $100 for a t-shirt with their logo on it, even though you normally wouldn't pay $100 for a t-shirt, even though you could just give them the $100, then do it.

Second, for society as a whole, prices are a information-transmission mechanism, conveying how much caring something requires to produce, and how much people care about it being produced. Mucking with this mechanism to divert value flows generally destroys more than it creates, especially since the prices can freely fluctuate in response to changing conditions, whereas policies are stickier.

[-]Philip_W6y10

By changing x and y, we represent your altruism to the other parties in the situation; if x is greater than 1, then you would rather give the commune money than have it yourself,

Small correction: you want to buy the widget as long as x > 7/8 .

You should also almost never expect x>1, because that means you should immediately spend your money on that cause until x becomes 1 or you run out of credit. x=1 means that something is the best marginal way to allocate money that you know of right now.

2Vaniver6y

I think we're using margins differently. Yes, you shouldn't expect situations with x>1 to be durable, but you should expect x>1 before every charitable donation that you make. Otherwise you wouldn't make the donation! And so x=1 is the 'money in the bank' valuation, instead of the upper bound.

[-]Lukas Finnveden6y10

Wait, are you claiming that humans have moral intuitions because it maximizes global utility? Surely moral intuitions have been produced by evolution. Why would evolution select for agents with behaviour that maximize global utility?

2Vaniver6y

No, I'm claiming that moral intuitions reflect the precomputation of higher-order strategic considerations (of the sort "if I let this person get away with stealing a bike, then I will be globally worse off even though I seem locally better off"). I agree that you should expect evolution to create agents that maximize inclusive genetic fitness, which is quite different from global utility. But even if one adopts the frame that 'utilitarian calculus is the standard of correctness,' one can still use those moral intuitions as valuable cognitive guides, by directing attention towards considerations that might otherwise be missed.

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[-]Donald Hobson6y60

Firstly, you are confusing dollars and utils.

If you buy this product for $100, you gain the use of it, at value U[30] to yourself. The workers who made it gain $80, at value U[80] to yourself, because of your utilitarian preferences. Total value U[110]

If the alternative was a product of cost $100, which you value the use of at U[105], but all the money goes to greedy rich people to be squandered, then you would choose the first.

If the alternative was spending $100 to do something insanely morally important, U[3^^^3], you would do that.

If the alternative was a product of cost $100, that was of value U[100] to yourself, and some of the money would go to people that weren't that rich U[15], you would do that.

If you could give the money to people twice as desperate as the workers, at U[160], you would do that.

There are also good reasons why you might want to discourage monopolies. Any desire to do so is not included in the expected value calculations. But the basic principle is that utilitarianism can never tell you if some action is a good use of a resource, unless you tell it what else that resource could have been used for.

[-]Said Achmiz6y50

Suppose that the commune sells the widgets for $29. You purchase one, gaining net $1 of value; the commune gains net $9 of value. Total net gain = $10. (You seem to be assuming that utility ends up being linear in money, so let’s stick with that assumption.)

This seems to be exactly as good as the scenario you describe. Do you agree? And yet my scenario does not require anyone to have any moral motivations, make any sacrifices, etc.; it only requires self-interest.

[-]EconomicModel6y10

> You seem to be assuming that utility ends up being linear in money, so let’s stick with that assumption.

> For a function to convert dollars to utils u($), u'($)>0, u''($)<0

^^^non-linear function^^^

^^^U''($)!=0^^^

[/snark]

[-]Slider6y10

I don't know whether it's equivalent but it seems the transaction is equivalent to a $20-$30 price point fair deal plus a $80-$70 sized gift. In the limit if a dollar is worth equal to everyone then a gift $X-$X=0 no net change from gifting. The trade part comes from evaluation being higher than cost. This would be true even if the beneficiary and the cost bearer would be the same party.

[-]Dagon6y40

Your question contains some contradictions, or maybe a confused use of "value". Value is individual and marginal. If you value your marginal ("next to spend") $30 equal to a marginal ("next to acquire") widget, then you won't buy it at $100. You'll keep your money and do without the widget.

If you buy the widget, that's pretty strong evidence that you actually valued it equal or more than the $100.

_until_ you start caring about who's selling the widget. If you choose to buy from the collective at $100, but wouldn't buy from FacelessWidgetCorp at that price, then you're actually doing some mix of donation and purchase. The problem is that you don't specify what the mix is, and you have no idea if the donation portion is being distributed well. Generally, you'd be closer to your reflective preferences to buy (or not buy) the widget as efficiently as possible, and to make your donation as efficiently as possible.

[-]EconomicModel6y10

Some context. I do not, in fact, believe that Kaldor-Hicks efficent actions are inherently moral. But I do think that Kaldor-Hicks efficiency is a pretty good first-pass heuristic. This thought experiment was meant to set up a dilemma between Kaldor-Hicks efficiency (which says to buy) and my moral intuitions (which says not to buy). The problem is that I can't figure out exactly what my intuition is trying to tell me about what seems to be a fairly straightforward utility-maximizing transfer. For the purposes of this contrived thought experiment, suppose that the only decision is whether or not to buy from the commune. There isn't an option to donate some or all of the money to GiveDirectly if I choose not to buy. Just buy a widget or buy $100 worth of ice cream.

[-]Dagon6y20

Eh, I don't put much weight on moral intuitions in deeply bizarre choices. That's not what they're evolved/trained on, and it seems designed to give odd responses. Examining one's reaction can sometimes be interesting, but it isn't a good guide to moral truth.

Your ice cream scenario isn't about you spending $100, it's about you choosing between ice cream and a commune-provided widget. I don't see much of interest in that choice.

[-]EconomicModel6y30

Past a certain point, this is certainly true. But you need a certain degree of reflection before you can tell whether further reflection is likely to produce valuable insights. Apparently you hit your limit, but I haven't yet. If you have some reason why you think this is a particularly unenlightening thing to think about, I'd love to hear it, but this seems like a matter of different tastes.

See Vaniver's comments below his answer for reasons I think this is worth thinking about. I basically agree with them.

[-]philh6y30

My intuition here is: Giving someone money moves wealth around. Creating a widget (at $20 cost, which at least one person values at $30), produces wealth. So [the world where a widget gets created] has more total wealth than [the one where it doesn't], and so it's not surprising if your moral calculus values it more highly.

[-]Stuart_Armstrong6y30

It seems like buying widgets would be more moral then, say, donating $80 to the same group of poor people ($80 - $80 = $0) because the widget purchase slightly compensates me for the donation in a way that is greater then the cost of the recipient to produce the widget.

It's certainly not more moral (because the extra benefits flow to you, and that is generally not seen as a moral plus). But there are similar arguments for micro-loans rather than giving directly: the profit from the microloan means that you can offer more loans after.

I believe the empirical evidence is that that argument is wrong, but it's certainly not wrong in theory. Similarly, if you could use the $30 worth of your widget to free up >$20 worth of value on your side, and donate that, then it would be more moral.

Basically trade typically adds more total value than donation, but a) donations can be targeted in ways trade can't, and b) the total value added is not relevant to the receivers, just to yourself, unless you use that extra value to trade or donate more.

[-]Kaj_Sotala6y130

the extra benefits flow to you, and that is generally not seen as a moral plus

This is correct, but I'm not sure that it should be: there's no intrinsic reason for why your well-being wouldn't be just as important morally as everyone else's. Empirically, people thinking that their own well-being doesn't matter and only other people's well-being does, seems to be a big factor in do-gooders burning out.

[-]Stuart_Armstrong6y10

Yes, that's true. But I've been kind of treating value-to-yourself as fungible. If it isn't, and if the marginal utility gain for you is tiny, then trade is less interesting.

[-]EconomicModel6y10

>It's certainly not more moral (because the extra benefits flow to you, and that is generally not seen as a moral plus).

Not in the calculus as I run it. I consider a util to me, a util to Warren Buffett, and a util to an impoverished african farmer to be equivalent (insofar as interpersonal utility comparisons are possible etc. etc.). The only reason I consider a dollar donation to GiveDirectly>a dollar spent on ice cream>a dollar donation to Warren Buffett's personal checking account is because "for a function to convert dollars to utils u($), u'($)>0, u''($)<0".

>I believe the empirical evidence is that that argument is wrong, but it's certainly not wrong in theory.

What empirical evidence? It's a contrived thought experiment, not something I'm actually debating.

> the total value added is not relevant to the receivers, just to yourself, unless you use that extra value to trade or donate more.

Again, this is just plain wrong. Utilitarianism!=self-flagellation.

[-]Stuart_Armstrong6y10

Even without self-flagellation, if your marginal utility per $ is much lower, and you don't use your own surplus in a fungible way to donate/buy more, donating can be much higher impact than trade. First of all, you have more freedom to target donations that trade, and even if we ignore that, capturing all your money is better for the producer than just capturing the producer surplus (and the marginal utility of the consumer surplus to you is sufficiently low that adding it on doesn't bring the surpluses to a higher number).

[-]EconomicModel6y10

capturing all your money is better for the producer than just capturing the producer surplus (and the marginal utility of the consumer surplus to you is sufficiently low that adding it on doesn't bring the surpluses to a higher number).

By assumption, the consumer surplus to me is $30. Which is high enough to bring the surpluses to a higher number. I'm not denying that there are slightly different constructions of the problem where donation is the trivially more moral action. That's not the point, though. The point is that, in this particular scenario (where, by preference fulfillment/K-H efficiency, buying>donating>keeping my money) my moral intuition says to donate or keep the money. You're making further assumptions (U(consumer surplus) is approximately 0) which make the problem easier, but less interesting.

[-]siclabomines6y10

I think the calculus is correct, in the "non-iterated" game. The conclusion is correct in the same sense that it would be even better to donate $101 and come back the next day with a black sock on your head and steal a widget.

There's just something about the iterated exercise of mixing up donations and transactions that you don't like, and I share that intuition. I think in my case I feel that their strategy of selling at a high price discourages other potential transactions from people that value the widget between $20 and $100 and don't care about who's selling it. And I am particularly sensitive about taking advantage of the simple win-win opportunities first. Or maybe I just dislike the lack of transparency of dressing up the donation as a purchase.

In my experience for many people it's the other way around. Many are much more willing to buy some useless product at a high price, a product that they value less than its producing cost, instead of just donating. I assume it's because they feel it's better to pay someone that's "working" for their money than to incentivize begging.