[Kingoffrogs]

Hi.

I was listening to a debate earlier today between a Chicago and an Austrian economist and the concepts of cardinal and ordinal utility came up.

They both critiqued the flaws of both methods of "measuring" utility.

The critique of cardinal utility was this: That cardinal utility is an attempt to quantify a qualitative observation.

The critique of ordinal utility was this: That ordinal utility can vary between different instances concerning the exact same goods/services and is dependent on many variables, so much so that ordinal utility is not kept constant.

My question is this: what are the appropriate circumstances under which method of "measuring" utility should be used?

[wat0n]

You use ordinal utilities, considering that the changes in those conditions can represent meaningful information (in some cases, actually representing different goods or services).

[Puffer Fish]

Measuring "value" is a major problem in economics.

I kind of lean towards a more mathematical approach, wanting to try to quantify things, so that is Cardinal utility.

But when we mathematically quantify things, we have to be careful not to ignore essential qualitative differences, and have to recognise that in some situations things will be relative (even if they can be mathematically quantitatively compared).

Market prices will often not correlate with absolute need, because market price is determined by supply. So for example, you need water much more than you need a diamond, but because water is so abundant, you will never pay much for water.

Sometimes during an emergency and supply shortage, we can see market prices wildly fluctuate, coming closer to absolute need.

The perspective of Ordinal utility comes in use when there are substitute or alternative goods. One example is I'd rather have a steak than two hamburgers, even though according to Cardinal utility I valued the steak at 10 and the hamburger at 6.
The thing is, if I can get a steak, then I will not want a hamburger, and two hamburgers will not make me twice as satisfied as one.

So the problem with Cardinal utility is it is not always additive in real life.

[Wellsy]

And it’s debatable whether cardinial utility even tracts with the actual mathematical concept of cardiniality because how do you make quantitative satisfaction. I can understand scales of ranking to get some sense, but there isnMt some discrete entity being measured and often the quantitative part is just equated with price. But how is a good beer satisfying in the same way a new car is?

[url]digamo.free.fr/elson79-.pdf[/url]

It is only in the critique of Bailey (in Theories of Surplus Value, Part 3, p. 124-159) that this distinction is explicitly discussed. The 'immanent' measure refers to the characteristics of something that allow it to be measurable as pure quantity; the 'external measure refers to the medium in which the measurements of this quantity are actually made, the scale used, etc. The concept of 'immanent' measure does not mean that the 'external' measure is 'given' by the object being measured. There is room for convention in the choice of a particular medium of measurement, calibration of scale of measurement, etc. It is not, therefore, a matter of counter-posing a realist to a formalist theory of measurement (as Cutler et al., 1977, suggest p. 15). Rather it is a matter of insisting that there are both realist and formalist aspects to cardinal measurability (i.e. measurability as absolute quantity, not simply as bigger or smaller). Things that are cardinally measurable can be added or subtracted to one another, not merely ranked in order of size, (ranking is ordinal measurability).

A useful discussion of this issue is to be found in GeorgescuRoegen, who emphasises that: 'Cardinal measurability, therefore, is not a measure just like any other, but it reflects a particular physical property of a category of things.' (Op. cit., p. 49.)

Only things with certain real properties can be cardinally measured. This is the point that Marx is making with his concept of Immanent' measure, and that he makes in the example, in Capital, I, of the measure of weight (p. 148-9). The external measure of weight is quantities of iron (and there is of course a conventional choice to be made about whether to calibrate them in ounces or grammes, or whether, indeed, to use iron, rather than, say, steel). But unless both the iron and whatever it is being used to weigh (in Marx's example, a sugar loaf) both have weight, iron cannot express the weight of the sugar loaf. Weight is the Immanent' measure. But it can only be actually measured in terms of a comparison between two objects, both of which have weight and one'of which is the 'external' measure, whose weight is pre-supposed.

And as such it doesn’t seem that either offers a measure of value and is just assumed some tight link to price but a vague one. Especially when satisfaction is tied to use value and doesn’t leap to quantity.
[url] https://scholarship.law.duke.edu/cgi/vi ... ontext=lcp[/quote]

of account precedes rather than follows the act of comparison. Partial equilibrium models likewise assume a working medium. In other words, neoclassical thought itself ascribes a unit that will make value commensurable. The unit is abstract and therefore neutral; it is a device that transparently expresses value without more. That move is essential to every activity that follows: it enables comparison, choice, and, eventually, exchange. It thus makes possible market activity as a process that aggregates individualized preferences and produces prices.

Having assumed a unit that makes values commensurable, neoclassical thinkers can relegate all other questions about what actual money is and what role it plays to the realm of applied science.8 That deferral is terrifically enabling. It allows economists to explain actually observed moneys that don’t conform to the abstraction in ways consistent with normative premises of equilibrium models. Thus neoclassical thinkers define money in the real world in ways that tack close to their presumptions about how money should look: they assume that exchange activity among equally situated individuals suffices to produce a medium as bartering individuals converge on a commodity or agree to an empty measure as a convention. Although those moneys fail to resemble the unit of account imputed by Walras—they are either material and non-neutral or nonmaterial and meaningless—those problems are not categorized as fatal.9 To the contrary, economists can correct for monetary dynamics while identifying those dynamics as distortions, given money’s deviation in the real world from the Walrasian abstraction.

In effect, neoclassical economics imputes a term to resolve the challenge of commensurability at the conceptual level: it assumes money as an abstract and neutral unit of account. The discipline subsequently explains moneys actually observed: it focuses here on money as a medium emerging from trade. The sleight of hand submerges the issue of incommensurable values. Incongruities are set aside as the byproduct of difficulties on the ground.
...
The basic point is that some commensurability in value allows comparison among the wide heterogeneity of commodifiable items. Neoclassical theory has split again and again in its debates over value, from the subjectivism of Bentham’s utility to the methods for comparing pairs of preferences.22 Implicit across those debates, however, is an agreement that comparison is possible, even if in an abstract term.
...
The problem of commensurability is different. It poses the challenge of comparison: how is it possible to compare an orange to an advance of resources, or a dog to military service? What about the relationship of any of those to the possession of land or art, or to the obligation to support the public order? That question, infinitely harder, is virtually nonexistent in the economic literature on money.43 That neglect, in contrast to the intense focus on the issue of the double coincidence of wants, occurs because Walras’s auction has done its work. It has established the intuitive power of the market-as-a-huge-bazaar, an orgy of real exchange among objects of comparable value.44
...
Narratives that propose an empty measure provide no reference point against which comparison can proceed. Money, even if considered only as a unit of account, is nothing like an inch or a pound. Those metrics are more like denominations; they divide a matter already commensurable, like linear space or weight. By contrast, money creates a reference point for an amorphous matter: value. To this day, neither economists nor philosophers have agreed upon how to conceptualize the “value” of time, goods, services, satisfactions, or desires. Once that is done monetarily—the whole trick—no one really cares much how denominations are ordained to subdivide existing value.