About the problems with utility theory. On the one hand, some reasonable philosophers hold that utility theory makes sense at one level.
On the other hand, the way that much mainstream theory uses utility theory is wacko and dishonest. One good example of this is in undergraduate trade textbooks, but it also is used in almost any policy issue. First, they say you can't compare utilities. Second, they say let's use assume that $1 utility of person A = $1 utility of person B. This is not only completely arbitrarty, it is also invalid given the first statement. Third, they say "well let's assume compensation of losers by winners takes place and so everything is cool." Fourth, they say, "well compensation doesn't happen, but what the hell, let's add up utility anyways and make welfare statements about what is "best"." This fuzzy thinking drives me up the wall. If such thinking is going to be done, then just assume people are identical and that diminishing marginal utility (to income) exists. You move right to income redistribution from these assumptions. At a more fundamental level, utility theory ignores a major claim of many western thinkers that (using mainstream language) people have preferences over preference orderings but that they often find they are using a preference ordering that they wished they didn't. Aristotle (and to a lesser extent) Plato believed this. Further, the whole of Christianity presumes that people face this problem constantly. And don't forget Kant's discussion that the right thing to do is often different from what people want to do. I can't remember the classic mainstream discussion of this (it might be Becker, Gary S. and Stigler, George J. "De Gustibus Non Est Disputandum" Cook, Karen Schweers; Levi, Margaret, eds. The limits of rationality. Chicago: University of Chicago Press, (1990): 191-217). But this avoids the major issue involved by assuming them away, if I recollect correctly. Eric .
