By Geoffrey Hodgson

Despite the rise of behavioral economics, many economists still believe that utility maximization is a good explanation of human behavior. Although evidence from experimental economics and elsewhere has rolled back the assumption that human agents are entirely self-interested, and shown that altruism and cooperation are important, a prominent response has been to modify individual preference functions so that they are “other-regarding”. But even with these modified preference functions, individuals are still maximizing their own utility.

Defenders of utility maximization rightly reject critical claims that specific behavioral outcomes undermine this assumption. They do not. But this is a sign of weakness rather than strength. The problem is that utility maximization is unfalsifiable as an explanation of behavior. As I show more fully in my 2013 book entitled From Pleasure Machines to Moral Communities, utility maximization can fit any real-world evidence, including behavior that appears to suggest preference inconsistency.

Get Evonomics in your inbox

But note that utility maximization is not a tautology. Tautologies are true by assumption or definition. Utility maximization is not a tautology because it is potentially false. But empirically it is unfalsifiable.

Where does that leave us? Utility maximization can be useful as a heuristic modelling device. But strictly it does not explain any behavior. It does not identify specific causes. It cannot explain any particular behavior because it is consistent with any observable behavior. Its apparent universal power signals weakness, not strength.

Economists have published triumphal articles in academic journals showing that individuals from other species, from rats to fish, are also faithful maximizers of their own utility. But the behavior of anything, from a motor car to a robot, can be made consistent with some utility function.

Again, these demonstrations betray weakness. The claim that utility maximization can explain the behavior of anything from bacteria to bees demonstrates crucially that there is nothing specifically human about such functions of utility or preference. Because utility maximization covers everything, it no longer tells us anything specific about the causes of human behavior.

Darwinian evolutionary approaches are different. As Charles Darwin elucidated in his Descent of Man, we need to consider the processes of natural selection, adaptation and development that lead to specific human traits. For example, propensities for altruism or cooperation among humans have to be explained by reference to the possible survival benefits or disbenefits for both the individual and for the group.

Such conjectures are potentially falsifiable, and they must be critically appraised in the light of the evidence. If they pass muster, then we have viable explanations. It is no longer a matter of stretching one theory to fit all evidence: it is a matter of falsifiable theoretical conjectures being put to the test.

For example, there is a controversy over the respective roles of genetic and cultural transmission in the evolution of human cooperation. Genetic data and evidence of group inter-mixing suggest that the genetic foundations of altruism and cooperation evolved principally among close kin, and then cultural transmission became more important. (See my Pleasure Machines book on this.)

2016 April 3