Next Economics 101 lesson: Marginal utility and medicine

 

I should mention a component of the classical theory called “declining marginal utility.” This means that the first two or three tomatoes you buy are worth more to you than the next three, and by the time you have more than you can possibly eat before the next one goes bad, they’re basically worthless. (We’ll leave aside that the seller, probably a corporation, would like to sell as many tomatoes as possible and does not experience declining marginal utility of money.)

This idea seems basically to make sense for groceries or movie tickets,[1] but it doesn’t make much sense for medical services. Either you need something once, and you’re done; or you need it continuously, for the rest of your life. I’m not going to get a second right hemicolectomy no matter how cheap it is, and I would have been no more inclined to get the first one if it were free or even if they paid me to take it. On the other hand I’m not going to stop taking my blood pressure medications because I’ve gone long enough without a heart attack that I’m now satisfied.




[1] It’s actually not so simple. As I consume tomatoes or movies, I might acquire a taste for them and end up buying more rather than less. People might praise my tomato sauce so much that I end up bottling gallons of it and selling it, and buying all the tomatoes I can get my hands on. Then there are the cases of collectors and addicts. In other words these assumptions are generally intuitively appealing, but empirically half-truths at best.

Wednesday Bible Study: Paul appoints himself a demigod

I was just thinking that it's kind of strange that "Christians" made Paul's letters part of the canon -- having the same status of scriptural authority as the Gospels. As I've said before, it isn't really Christianity, it's Paulism, and right here, in Chapter Four, that's what Paul says, beginning with verse 14. He's the boss.

 

4 This, then, is how you ought to regard us: as servants of Christ and as those entrusted with the mysteries God has revealed. ² Now it is required that those who have been given a trust must prove faithful. ³ I care very little if I am judged by you or by any human court; indeed, I do not even judge myself. ⁴ My conscience is clear, but that does not make me innocent. It is the Lord who judges me. ⁵ Therefore judge nothing before the appointed time; wait until the Lord comes. He will bring to light what is hidden in darkness and will expose the motives of the heart. At that time each will receive their praise from God.

⁶ Now, brothers and sisters, I have applied these things to myself and Apollos for your benefit, so that you may learn from us the meaning of the saying, “Do not go beyond what is written.” Then you will not be puffed up in being a follower of one of us over against the other. ⁷ For who makes you different from anyone else? What do you have that you did not receive? And if you did receive it, why do you boast as though you did not?

⁸ Already you have all you want! Already you have become rich! You have begun to reign—and that without us! How I wish that you really had begun to reign so that we also might reign with you! ⁹ For it seems to me that God has put us apostles on display at the end of the procession, like those condemned to die in the arena. We have been made a spectacle to the whole universe, to angels as well as to human beings. ¹⁰ We are fools for Christ, but you are so wise in Christ! We are weak, but you are strong! You are honored, we are dishonored! ¹¹ To this very hour we go hungry and thirsty, we are in rags, we are brutally treated, we are homeless. ¹² We work hard with our own hands. When we are cursed, we bless; when we are persecuted, we endure it; ¹³ when we are slandered, we answer kindly. We have become the scum of the earth, the garbage of the world—right up to this moment.

Paul’s Appeal and Warning

¹⁴ I am writing this not to shame you but to warn you as my dear children. ¹⁵ Even if you had ten thousand guardians in Christ, you do not have many fathers, for in Christ Jesus I became your father through the gospel. ¹⁶ Therefore I urge you to imitate me. ¹⁷ For this reason I have sent to you Timothy, my son whom I love, who is faithful in the Lord. He will remind you of my way of life in Christ Jesus, which agrees with what I teach everywhere in every church.

¹⁸ Some of you have become arrogant, as if I were not coming to you. ¹⁹ But I will come to you very soon, if the Lord is willing, and then I will find out not only how these arrogant people are talking, but what power they have. ²⁰ For the kingdom of God is not a matter of talk but of power. ²¹ What do you prefer? Shall I come to you with a rod of discipline, or shall I come in love and with a gentle spirit?

 

Economics 101 continued: The root of all evil

Last time, we considered whether Bob really is always exercising free choice in the (fictitious) Free Market.™ Today, we consider Bob's situation when he does have choices and has to choose how to allocate whatever resources he has in order to obtain what he needs and doesn't have. This is where money comes in. Bob and Alice were just swapping corn for chickens, but reality is much more complicated. If Bob was exchanging, say, baseball cards for food they would be worth wildly different amounts to different food sellers, and trying to find the best deal would be nearly impossible. Bob would have to haggle with each of them individually before he could figure it out, and he might be dead by then.

I won’t go into the deep philosophical weeds about what money really is. Karl Polanyi calls it a “fictitious commodity.” It’s worth something because we pretend it is. For money to work properly in the economists’ magical world, its value for each person has to be equivalent to a quantity of an imaginary entity called “utility.” Supposedly we go through life trying to maximize our utility, a mysterious psychological property, something like the satisfaction of our desires measured in standard units, so that $1 can be equal to 1 utile. People are presumed to be “rational actors” – they calculate exactly how to allocate their monetary resources to acquire the maximum number of utiles. I won’t keep you in suspense: people do not actually do this.

Most fundamentally, we just don’t have the time or energy. There isn’t room in people’s lives or brains to thoroughly or even cursorily research every product on offer, deeply and honestly ponder our short- and long-term desires, calculate the probabilities of a purchase making us happy or disappointing us (people are very bad at probabilistic intuitions anyway), and accurately allocate our resources so as to maximize our utility or happiness or whatever you want to call it.

Instead, we rely on “heuristics,” cognitive shortcuts, and we often act impulsively. The term “bounded rationality” was used by Herbert Simon in the 1950s to capture the idea that we put limited cognitive resources into decision making, enough that our choices are usually good enough to feel satisfying, even if they could be even better if we worked harder at it.

Later work, most notably begun by the psychologists Amos Tversky and Daniel Kahneman, empirically explored the decision heuristics people actually use, and uncovered many so-called biases, that is ways in which people’s decision making differs from earlier assumptions of what is “rational.” They wrote many papers. One of their best known and seminal contributions is called Prospect Theory, the main idea of which is that people tend to be more risk averse than they are acquisitive, in other words losing fifty bucks hurts more than gaining fifty bucks feels good. (This obviously doesn’t work with gambling addicts, however.)

Subsequent work by them and others has revealed many ways in which people’s spending and investing behavior deviates from what was previously considered “rational.” I won’t belabor it here, but for now, I’ll just say that you wouldn’t see all that advertising if it didn’t work, and corporations aren’t spending the money to support your rational choice. Keep that in mind as you see what seems like 50% of all advertising being for drugs, snake oil, Medicare Advantage plans, and medical provider corporations.

 Next we'll have more to say about "utility."

 

Sunday Sermonette: Be fools

 Chapter 3 consists mostly of Paul scolding the Corinthians, calling them childish and generally speaking down to them because they are having some unspecified doctrinal disputes. Then he once again tells them to be ignorant and not to ask questions or think for themselves. That's the essence of religion.

 

3 Brothers and sisters, I could not address you as people who live by the Spirit but as people who are still worldly—mere infants in Christ. ² I gave you milk, not solid food, for you were not yet ready for it. Indeed, you are still not ready. ³ You are still worldly. For since there is jealousy and quarreling among you, are you not worldly? Are you not acting like mere humans? ⁴ For when one says, “I follow Paul,” and another, “I follow Apollos,” are you not mere human beings?

⁵ What, after all, is Apollos? And what is Paul? Only servants, through whom you came to believe—as the Lord has assigned to each his task. ⁶ I planted the seed, Apollos watered it, but God has been making it grow. ⁷ So neither the one who plants nor the one who waters is anything, but only God, who makes things grow. ⁸ The one who plants and the one who waters have one purpose, and they will each be rewarded according to their own labor. ⁹ For we are co-workers in God’s service; you are God’s field, God’s building.

¹⁰ By the grace God has given me, I laid a foundation as a wise builder, and someone else is building on it. But each one should build with care. ¹¹ For no one can lay any foundation other than the one already laid, which is Jesus Christ. ¹² If anyone builds on this foundation using gold, silver, costly stones, wood, hay or straw, ¹³ their work will be shown for what it is, because the Day will bring it to light. It will be revealed with fire, and the fire will test the quality of each person’s work. ¹⁴ If what has been built survives, the builder will receive a reward. ¹⁵ If it is burned up, the builder will suffer loss but yet will be saved—even though only as one escaping through the flames.

¹⁶ Don’t you know that you yourselves are God’s temple and that God’s Spirit dwells in your midst? ¹⁷ If anyone destroys God’s temple, God will destroy that person; for God’s temple is sacred, and you together are that temple.

¹⁸ Do not deceive yourselves. If any of you think you are wise by the standards of this age, you should become “fools” so that you may become wise. ¹⁹ For the wisdom of this world is foolishness in God’s sight. As it is written: “He catches the wise in their craftiness”^[a]; ²⁰ and again, “The Lord knows that the thoughts of the wise are futile.”^{[b] 21} So then, no more boasting about human leaders! All things are yours, ²² whether Paul or Apollos or Cephas^[c] or the world or life or death or the present or the future—all are yours, ²³ and you are of Christ, and Christ is of God.

1. 1 Corinthians 3:19 Job 5:13
2. 1 Corinthians 3:20 Psalm 94:11
3. 1 Corinthians 3:22 That is, Peter

 

Lesson 3: "Free"?

 

Last time we looked at the totally false assumption of "perfect information." Today's first bogus assumption is that Alice and Bob both enter into this transaction freely and willingly. That’s actually hard to define. If Bob’s crop fails and he’s starving, is Bob really free to take or leave Alice’s chicken? You might argue that even if Bob gives Alice everything he possesses, and binds himself to her in servitude for life, he’s still better off because at least he isn’t dead. That may be so, but obviously this isn’t a world Bob wants to live in.

At the very least, to protect Bob in this situation, there have to be a lot of people selling food, they have to be competing with each other and not colluding to hold up the price, and Bob has to know what each of them has on offer at what price, and be able to choose among them. That way he’ll get the best possible deal. If Alice controlled all of the food in town, she’d be the dictator, and you could hardly getting away with calling that a Free Market. But that’s actually the case if Alice has a patent and exclusive marketing rights to a medication Bob needs to survive – a situation that exists for may people in the U.S. today. 

 Next time, we'll get to the basic stuff of economics, money. As we await the post, keep in mind, indeed deeply ponder, that money does not exist in nature. It is a human invention. What is it exactly?