2 levels of hedonistic influence on microeconomic theory

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Scotr tst t Joiimd of Politrcui Economy, Val . 3 7 , No 4 November 1990990 Scorrish Econorntc Society

TWO LEVELS O F H E D O N I S T I C I N F L U E N C E O NM I C R O E C O N O M I C T H E O R Y

S T A V R O S . D R A K O P O U L O SUniversity of Aberdeen

IINTRODUCTION

Hedonism is the philosophical view that the maximization of pleasure orhappiness is the highest good and aim of life. Hedonism had, and indeed stillhas, considerable influence on ma ny area s of intellectual activity. He donisticideas were first introd uce d into econ omic s with the w ork of Bentham an d influ-enced the members of the late classical school, especially J . S. Mill and W . N.Senior. The peak, however, of hedonistic influence on economics was reachedin the marginalist period. The works of Jevons an d Edgeworth , for instance,were explicitly based on the hedonistic idea of selfish max imizatio n of pleasureor utility. The hedonistic influence during that time became explicit and animportant manifestation of its strength was that the main feature of theeconomic agent was the selfish maximization of utility. The influence of theBenthamite spirit on the late classical school and on the m arginalist school hasbeen recognized by a number of theorists such as T. Veblen, J. M . Keynes an dA . W . Coat s see Veblen, 1972 [1906], Keynes, 1973 [1933], and Coats, 1976).

At the beginning of this century a tendency to diminish the hedonistic orien-tation of orthodox economic theory appeared. The principal reasons for thiswere, on the one han d, the movem ent toward s a neutral economic science freedfro m psychological assu mp tion s inspired by the spirit of logical positivism)and, on the other, the heterodox attack on the hedonistic basis of mainstreamtheory. This started with the work of Pareto and Fisher and became strongerwith the work of Robbins, Hicks and Samuelson. The notions of utility andsatisfaction and the conception of the consumer as a satisfaction maximizerwere replaced by the Hicksian theory of consumer choice and Samelsons

The origins of hedonism can be found in the writings of ancient Greeks and especially inAristipus and Epicurus see Zeller, 1901, p. 123, and Dioge nes Laertius, 1975, [ c . A . D . 2301Book 5 . For a discussion o f different versions of hedonism psycholog ical, philosoph ical), seeFrankena, 1963, pp. 67-12.This paper has benefited from comments from Brian Loasby, Sheila Dow, Ron Shone andfrom an anonymous referee. The usual disclaimer applies.

Date of receipt of final manuscript: 30 October 1989.360


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H E D O N I S T I C I N F L U E N CE O N M I C R O E C O N O M I C T H E O R Y 361revealed preference theory. No wad ays the majority of theorists follow th e linethat large bodies of econo mic theory especially microeconom ic theory) ar eindependent of any philosophical or psychological basis like hedonism.

Despite the move towards a positive science of economics, however, if onelooks at contemporary economic textbooks one will find both explicit andimplicit indications of the hedonistic approach. The influence of hedonism issuch tha t on e can safely say th at textbook consu mer behaviour the ory is closerto the makers of the marginalist revolution, and that the at tempts made inrecent decades to con struct a value-free economic science have had a minimalimpact o n economic textbooks.

A number of explanations can be offered for the discrepancy betweenmodern consumer theory and textbook consumer theory. My contention is thatthis d iscrepan cy is du e t o th e necessity of the framework of egoistic hedonismfor th e comprehension of consumer theory; and this may in turn imply that ,despite the attem pts of Hicks an d Sam uelson , hedonism is still one of its impo r-tant underlying characteristics. This explanation can also be supported byindications of hedonistic influence in recent economic literature.

In short , the purpose of this paper will be to show the two levels of hedon-istic influence on econom ic theo ry especially consume r behav iour theory), an dthen t o try t o offer an explanation for this phenomenon.

I1HEDONISTIC INFLUENCE ON THE MARCINALIST SCHOOL

As som e historians of econom ic though t have realized but not adequatelyemphasized), the system atic introduc tion of hedonistic ideas in eco nomics tookplace in the first decad es of the nineteenth century with th e work of J . Benthamsee Schumpeter, 1963, pp. 66, 887-8; Roll, 1961, pp. 378-85; and Blaug,

1978, pp. 379-88). Bentham was responsible fo r the introduction of manyhedonism-based ideas and terms in economics, such as the very conceptof utility a nd th e basic objectiv e of eco nom ic agents: utility m axim izationBentham, 1823, pp. 1-2).

J . S. Mill, W . N. Senior an d other members of the late classical schoo l elab-ora ted fu rthe r Benthams hedo nistic views see Mill, 1979 [1863] and Senior,1850). How ever, the peak of the hed onistic influence on eco nom ics was reachedwith the emergence of the marginalist school. The emphasis on questions ofallocation which was a basic feature of marginalist thought meant that a modelof standard economic behaviour was needed. In addition, the emergence ofmarg inalism signified a shift from the supply-based explanation of value andprices to a demand-based explanation. The attempt to analyse the concept ofdemand assisted the application of hedonistic ideas. Moreover, the increasingtendency towards a formalistic methodology required a well-defined economicagent with sta nda rd and predictable behaviour. T he hedonistic frame wo rk wasthe ideal , an d thus the marginalist period marked the height of hedonistic influ-


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362 S . A DRAKOPOULOSence o n econom ic theory. T he evidence of hed oni stic influence especially ego-istic hedonism) ranges from a hedonistically based definition of economics toan explicitly hedonist econom ic agent see Jev ons , 1871, pp . 32, 44; Menger,1950 [1871], p. 123; Menger, 1963 [1883], p. 87; Walras , 1965 [1874],pp. 121, 125; Jaffk, 1977, p . 305; Edgeworth , 1881, pp. 15, 16).

THEEM ERGENCEF ANTI-PSYCHOLOGISMAround the tu rn of the century a number of economists started to worry a bou tthe profoundly hedonist ic image of econom ic theory and there was a movementto minimize that image. One reason for this movement may have been theincreasing influence of positivist methodology which called for a social sciencewithout psychological elem ents. This was reinforced by the h eterodox crit iquesee, fo r instance , Veblen, 1972 [1906], p. 178) of the psychological con tent of

hedonism.Essentially, this movem ent led t o the wo rk of Robbins, who established the

methological justification for minimizing the hedonistic image and continuedwith the work of Hicks and Samuelson. However, the first steps in thisdirection were mad e by Pareto , wh o was motivated in this attem pt by the sam ereasons as subsequent economists see Drak opou los, 1989). He though t tha tsocial sciences should follow the logico-experimental method by which theywould be able to discard all the metaphysical abstraction s see also Aro n, 1967,p . 45). Pareto is viewed by the majority of economists as having started theprocess of establishing a positive economic science and as the originator ofordinal utility see Ro ll, 1961, p . 409; Blaug, 1980, pp. 140, 141; Whit taker ,1960, pp. 301, 302). His use of index num bers, his attem pt t o avoid value-ladenterms like utility or pleasure, and his endeavour not to use the concept ofeconomic man, were in the spiri t of subsequent developments. Despite this,however, P areto can not help going back to familiar marginalist notions l ike areference to economic man, pleasure and the util i ty hil l , in the sectionconcerning the construct ion of indifference curves Pa ret o, 1971 [1908],

In the same spiri t , I. Fisher tried to replace all previous psychologicalassumptions of economics with a simple psycho-economic postulate: eachindividu al acts as he desires Fisher, 1965 [1892], p . 1 1 . Like Pare to , how-ever, Fisher could not help going back to notions l ike maximum satisfactionwhen, for instance, he discussed the relationship between price, qu antity an dma rginal utility Fisher, 1965 [1892], pp. 25, 26).

p . 120).

RobbinsAlthough Pare to s tar ted the downplay of hedonism in economics, Robbinsprovided the methodological justif ication and thus set the basis for the con-struction of a n appa rently value-free econom ic science. R obbins attem pted to


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HEDONISTIC INFLUENCE ON MICROECONOMIC T H E O R Y 363d o in econom ics the same thing th at others w ere doing in the social sciences.Beh aviourist psychologists, for instance, attem pted t o reject conscience fro m

psychology in order to build a positive, scientific psychology; see Watson,1930). Rob bins was also aw are of the a t tacks of non-or thodox economists onthe psychological assum ptions of econom ics Rob bins, 1932, p. 84). However,he emphasized that these assumptions were not a fundamenta l par t of thetheory, thus implying that economic theory could be built without thesesubjective notion s Ro bbins, 1932, pp. 85, 86 .

His new definition of economics was in the same spiri t , stressing thateconomics is a study of the relationship between ends an d m eans not of theends and means themselves). Thus the study of ends is beyond the scope ofeconom ics. Ro bbins, 1932, p. 15). This was the first step towa rds an ap par -ently psychology-free economic science. Furthermore, Robbins realized thatthe idea of a psychology-free econo mic science was inc om patible with the exist-ence of the concept of economic man which was based on psychologicalassumptions. Thus he attempted to minimize i ts importance by stating: i t isonly a n expo sitory device-a first app rox im ation used very cautiou sly at onestage in th e development of argu m ents which, in their full developm ent, neitheremploy any such assumption nor demand it in any way for a justif ication oftheir procedure Ro bb ins, 1932, pp. 85, 86).

The a t tem pt t o redefine the concept of util ity w as anoth er part of the ant i -psychologist m ovem ent. In a subsequent book , R obbins attempted t o expel anyhedonistic conn otation f ro m the concept. H e pointed out tha t util ity is notutility in the sense of psychological hedonism, but rather a neutral quality ofbeing the object of desire-hedonist o r otherw ise Robb ins, 1970, p. 27).

Robbins provided the methodological justif ication of a value-free, positiveeconomic science, and therefore assisted the development of an economictheory apparently independent of hedonism.

HicksA few years after the appearance of Robbinss main methodological work,John Hicks published his Value and Capital although other economists hadm ad e similar attem pts earlier on-Slutsky, 1915; Jo hn so n, 1913; Hick s an dAllen , 1934-Hickss wo rk was by far the m ost influential). The unde rlyingcharacteristic of this work was the rejection of basic marginalist concepts suchas utility, as being psychologically biased, and the introduction of a newobjective appro ach. The replacement of the cardinal app roa ch of the margin-alists with the ord inal appro ach can be seen in the sam e context.) Hicks though tthat the subjective, uti l i tarian-hedonistic app roac h of marginalist econom istsdid not constitute a legitimate scientific method. Thus his basic effort was thereplacement of marginalist utility theory with an objective, positive theory ofchoice. As one would expect, the introduction of a neutral theory of choicetended t o minimize the hedo nistic image of microeconom ics. Hickss intentionscan be seen on the first page of his book, when he writes: If one is utilitarianin philosophy, one has a perfect right to be utilitarian in ones economics. But


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364 S . A . D R A K O P O U L O Sif on e is not and few people are util i tarians nowadays) on e has the r ight to a neconomics free of utilitarian assumptions Hicks, 1946 [1936], p. 18).

Hicks, then, undertook a purge in order to eliminate all the hedonisticelements from econ omic theory. His first target was th e very n otion of utility.In the place of marginal utility Hicks put th e new concept of marginal rateof substitution, defining the marginal rate of substitution of X for Y as thequanti ty of X which would com pensate the consumer for the loss of a marginalunit of Y. Hicks, 1946 [1936], p. 20 . The concept of diminishing marginalutility was replaced by that of diminishing marginal rate of substitution.Hicks also constructed indifference curves in a different way, attempting toperfect Paretos idea of constructing an indifference curve without using sub-jective concepts. He conceived of indifference curves as showing the combi-nation of goods for which the individual is indifferent. They portraypreferen ces an d tha t is why s om etimes they ar e called preference-based indiffer-ence curves. The basic difference between H icksian an d Paretia n indifferencecurves is that in Hickss a commodity space is used instead of a utility hill.)It has to be noticed, however, that the explanation of lower and higherindifference curves again involves the notion of utility level.

SamuelsonSamuelson, like Pareto, Robbins and Hicks, believed that economics couldacquire the scientific prestige of the positive sciences if it could free itself fromsubjective elements. Th e oth er m otive fo r the co nstruction of his theory wasthe critique of the hedonistic or utilitarian bias of orthodox economics byheterodox economists. In his most important work, he emphasized the non-hedonistic nature of modern theory in contrast to the marginalist one. Con-comitantly, there has been a shift in emphasis away from the physiologicaland psychological hedonistic, introspective aspects of utility ... At the sametime there h as been a similar movement away from the concept of utility as asensation, as a n introspective magnitude Samuelson, 1947, pp. 61, 62 .

Samuelson, how ever, was not perfectly happy with the state of modern con-sumer theory. In an earlier article, he expressed the belief that even Hickssanalysis wa s not entirely f ree of traces of the utility conce pt Sam uelson, 1938,p. 61 . Th e essence of Samuelsons argum ent was that in Hicksian analysis thepreferen ce functio n indifference curve) is implicitly assumed. In the sam earticle he went o n to set the basis fo r a comple te positive consu mer be haviou rtheory. Th is theory, Revealed Preference, RP T) was allegedly based onobserved behaviour only. Influenced by the behaviourist psychology whichemphasized observed behaviour and neglected the underlying motivations,Samuelson tried to get away from the subjective concepts by acceptingobserved behaviour alone. His starting point was that the individual behavesas he behaves. However, for the construction of RPT the above point is notenough; three axioms are also needed. The m ost im portant of these is the tran-sitivity axiom, stating that the individual will be consistent in the following


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366 S. A . D R A K O P O U L O STh e crucial developments in m icroeconomic theory discussed in the previous

section became part of the accepted body of knowledge of orth odo x economicsin the 1940s an d 1950s. Ho wev er, if one looks at cont em por ary influentialeconom ic textbooks, one will f ind that the marginalist approach constitutes thecore of consum er theory o r productio n theory, three or four decades afterHickss and Samuelsons attempts. The majority of textbooks use the termsutil ity a nd satisfaction or pleasure as synonymous. This happens in elementarytextboo ks such as McC onnell , 1975, p. 488; Begg et a l . , 1984, p. 90; andGraven, 1984, pp. 168-9); the sam e thing can also be observed in m oreadvanced texts . For ins tance , one can read in Henderson and Quandt :

If we have a utility function of the fo rm

then since the util i ty function is continuous 1 ) is satisfied by an infinitenumber of combinat ions of 4 and 42 Imagine that the consum er derives agiven level of satisfaction U o f r o m 5 units of 41 a n d 3 units of 42.Henderson and Q uan d t , 1980, p . 9

Another intermediate textbook follows the same approach. Ferguson andG oul d write: A consu min g unit-either a n individu al or a household-derivessatisfaction or uti li ty from the services provided by the com modities consumedduring a given time period Fergu son an d Go uld, 1975, p. 12). O ther widelyused intermediate and sometimes advanced) texts follow the same approachsee, for instance, Koutsoyiannis, 1979, p. 18). It is clear that these works are

much closer to the marginalist l ine of thought than to developments of morerecent decades.

Ap art from identifying util ity with satisfaction as the m arginalists did, manycontemporary textbooks explicit ly refer to the concept of economic man. Inspite of R obbinss efforts to minimize i ts importanc e, the concept can be fo undin a number of textbooks, and is almost identical to that of the pre-Robbinsonian era. L. Friedman states: The model of economic man can bedescribed in terms of four assumptions ... These assumptions form a model ofdecision making sometim es referred to as economic m an , where each individualis por tray ed as a utility maximizer Frie dm an, 1985, pp. 22, 23). A ltho ugh itis not usually state d explicitly, econom ic man is ofte n viewed as selfish. Th us,although few authors would explicitly adopt egoistic agents, the stereotype isthat the satisfaction of the individual depends on what he consumes andnothing else see also W inter , 1969, p. 9). The model of economic man ispresent in D. Laidlers text w hen he w rites: The consum er wishes to d o as wellas he can for himself , to select that consu mp tion pattern ou t of tho se availableto him that will yield the highest possible level of satisfaction-he wishes t omaximize his utility Laidle r, 1981, p. 15). Th e attem pt by orth od ox theoriststo reduce all characteristics of econo mic m an int o one-rationality-is notvery popular among textbook writers, who still conceive him explicitly as asatisfaction m aximizer.

As one would expect from the above, the notion of the indifference curv e is


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H E D O N I S T I C I N F L U E N C E O N M I C R O E C O N O M I C T H E O R Y 367not explained in Hicksian terms bu t in m arginalist terms: The locus of all com-modity com bination s from which th e consumer derives the sam e level of satis-faction forms an indifference curve. An indifference map is a collection ofindifference curves corresponding to different levels of satisfactionsHenderson and Quandt, 1980, p. 9). Exactly the same definition is given byKoutsoyiannis 1979, p. 18). Th e Hicksian notion of a neutral indifferencecurve or m ap seems to have l i tt le impact on contemporary textbooks. Asobserved above, Hicks avoided mentioning any subjective concept like satis-faction in his discussion of the indifference map.)

In addition, the analysis of consumer equilibrium that can be found in themajori ty of texts is con duc ted in terms of satisfaction or utility levels. The con-sum er is viewed as having a given budget con stra int which is represented by astraight line or a linear equation. The maximum of consumer satisfaction orutility is attained at the point of tendency of the budget line with the highestindifference curve maximization of a utility function). Many textbooks followthis app roa ch w ithout worrying to o much abo ut using concepts which wereused by the marg inalists years ag o see, fo r instance , Laidler, 1981, p. 14;Miller, 1978, p. 31).There are cases, however, where the modern developments are taken intoaccount this is the case am ong more advanced texts). The Hicksian term mar-ginal rate of substitution which was meant to replace the hedonistic marginalutility) is mentioned by many texts. However, the term is connected with thenotions of satisfaction or utility which it was originally me ant t o replace. In a nintermediate text one can read: The marginal rate of substitution of x for yis] the number of units of y that must be given up per unit of x gained if theconsumer is to either feel equally well-off or to continue to obtain the samelevel of satisfaction M iller, 1978, p. 21). Exactly the sam e line of explanationis followed by Ferguson and Gould, and Koutsoyiannis, where the concept ofconstant level of satisfaction is used t o explain compensation Ferguson andGould, 1975, p. 24; Koutsoyiannis, 1979, p. 18).

Few texts refer to Samuelsons revealed preference theory as a theory whichwas intended to replace the value-laden marginalist utility theory. In manycases R P T is men tioned only in a brief footnote see, for instance, Miller, 1978,p. 31) or as a way of explaining index n umb ers. G enerally, textboo ks connectmo der n choice theories with marginalist analysis without giving a hint that thepurpose of those theories was to free economics from the psychologicalassumptions of the m arginalists. An example of such a textbook is Lancasters,where one can read:

Since most preferred and giving greatest utility are synonymous, we canmak e an addit ion to the l ist of equivalents to the statement that the consumerchooses point C on his budget line: A t point C the consumer maximizes hisutility for points on he budg et line Th e decision t o use utility analysis o rdirect preference analysis is simply a matter of convenience. Lancaster,1974, pp. 321-32)

The same line is followed by Stonier and Hague who discuss revealed pre-


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368 S. A . D R A K O P O U L O Sference by mentioning that the underlying assumption of the theory is asatisfaction-maximizing consumer Stonier and Ha gue, 1980, p. 91).In add ition, som e textboo ks define economics along the old marginalist lineseconomics is defined as a calculus of pleasure and pain). It seems thatRobbinss apparently value-free definition had little influence on them. It must

be noted that such definitions ar e rare in textbooks; what this show s, however,is that the explicit influence of hedonism-orientated marginalist economists isstill present even in so a basic thing as the definition of economics see forinstance, Solmon, 1976, p. 14).

Th e above examples dem onstrate th at th e influence of th e hedonistic frame-work o n many tex tbook s is considerable. Im por tant sections of microeconomictheory a re presented in a way tha t is explicitly based on he donistic ideas. Th us ,although economists such as Pareto, Robbins, Hicks and Samelson thoughttha t they had freed econo mics fr o m psychological hedo nistic) influence, con-temporary textbooks indicate otherwise. At this point it has to be mentionedthat Hicks and Samuelson considered their theories revolutionary in com-parison to the old subjective, marginal utility theory. Although it can bemaintained that the introduction of Keynesian ideas had a greater significancebecause it clearly d isputed th e old theories, one c anno t help draw ing parallelswith the introduction of the allegedly psychology-free theory of choice. In spiteof this, the textbooks d id not take into accou nt th e full significance an d changein terminology as they did with the Keynesian ideas.

POSSIBLEXPLANATIONSA number of possible explanations can be suggested for th e abo ve discrepancy.The first cites pedagogic reasons. In particular, it can be argued that textbookwriters attem pt to sim plify theory in order t o mak e it easier for students. Thu sit is better t o use concepts which are easier. In the sam e context, o ne can alsoarg ue tha t M arshalls usage of utility an d utility m axim ization ha s exercized a nimpo rtant influence on the teaching of economics and therefore on textbooks.An other explanation could be that according to a widespread methodologicalbelief, the validity of the assumptions is not important for the constructionof economic theories. Thus, it does not really matter if the assumptions oftextbooks are based o n hedonist ic ideas.

A third explanation might be the following: th e framewo rk of psychologicalhedonism is necessary for the comprehension of orthodox consumer theory:thus, despite Hickss an d Samuelsons attemp ts, hedo nism is still an imp ortantunde rlying characteristic. In p artic ular , the explicit hedonistic influence on text-books can be seen as a reflection of the criticisms of the alleged neutrality ofthe modern theories of choice by various theorists such as N . Georgescu-Roegen, J. Robinson, E. J . M ishan, W . Kroebel-Rier, B . Loasby, S. Wo n g a n d


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H E D O N I S T I C I N F L U E N C E O N M I C R O E C O N O M I C T H E O R Y 369L. Bolland. I tend to believe that the last explanation is more plausible thanthe first two.

First explanation: pedagogic reasonsIt can be maintained t ha t simplification purp oses ar e responsible f or thepresence in textbooks of hedonistic concepts. An initial observation whichundermines this explanation is tha t, as we saw, hedonistic concepts ar e not usedonly in introductory textbooks, but also in intermediate ones. One can evenfind examples of advan ced texts w here utility theory is explicitly considered asa more powerful tool th an choice theory see, for instance, Gre en, 1976,p. 80 . Th is is a first indication th at he donistic ideas are no t used fo r simplifica-tion purposes.Another argument which supports this is the existence of few elementarytextbooks where consumer theory is presented solely in terms of a generalchoice theory. An example of such a textbook is V . Walshs Introduction toContemporary Microeconomics. Walshs textbook starts with a brief referenceto the history of the utility co ncept an d its subsequent replacement. A fter pre-senting the main points of consumer theory according t o Jevons, Marshall andEdg ewo rth, Walsh goes on to emphasize that this theory has been replaced bya theory of choice. The whole subsequent analysis is based on Hickssapproach. In contrast to many texts, Walsh discusses indifference curves interms of preferences not in terms of utility see W alsh, 1970). Th e fact tha t thetext has been a popular student textbook for many years indicates that choicetheory can be presented simply eno ugh t o be unde rstoo d by first-year universitystudents. Further argument against the simplification hypothesis is that thegreat majority of writers explicitly advocate a positivist economic method-ology . Th is implies tha t value-laden terms are not perm itted even if they cansimp lify theories) for meth odolog ical reason s see, for instance, Lipsey, 1984).

A part from simplicity on e can suggest ano ther explanation at the pedagogiclevel which has to do with Marshalls influence. It can be argued thatM arshalls analysis of consumer behaviour and demand in terms of utility andutility or pleasure maximization has had an important effect on the way thatecono mics is taug ht see M arshall, 1961 [1890], p. 838). In M arshalls wo rkon e can find the main elements of a utility-based consumer theory. A note ofcaution is necessary before we proceed: it should be mentioned that the con-temp orary textbook representation of Marshalls work is partial. M arshall wasalways very careful about utility analysis. First of all, most parts of his workwhich can be identified in mod ern texts were only mentio ned in appendic es, an dhe was always anxious to emphasize that they belong to Hedonics but not t oecono mics M arshall, 1961 [1 890], p. 841). It is clear tha t he put mu ch lessemphasis on utility analysis than other contemporary theorists. Furthermore,as an indication of his unique approach, the Marshall ian theory of value,unlike that of other marginal utility theorists, was a combination of marginalutility and costs of produ ction see Loas by, 1978, p. 2 . These facts imply tha tthe hedonistic dimension of Marshalls thought has been overemphasized


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370 S. A . D R A K O P O U L O Sby textbooks while other parts of his work have been completely neglectedsee also Birch, 1985, p. 195). This again indicates the hedonistic bias of

contemporary texts.Altho ugh the distorted) Marshallian influence hypothesis is relevant toa number of textbooks, it is still not adequate to explain fully the above-mentioned discrepancy. Examples of texts which adopt a historical approachto the discussion of consumer theory provide evidence for this. In particu lar,

some textbooks present Marshalls theory first and then the indifferenceanalysis specifying the ir differences an d their historical contex t, but still explainchoice theo ry in terms of satisfaction maximization. Th us textbook writers whoare conscious of the Marshallian tradition but also of its differences fromchoice theory feel the need to explain modern choice theories by refering tohedonistic related concepts. Th e case of Koutsoyiannis is indicative: there is areference to Marshall when cardinal utility theory is discussed and referencesto Hicks and Samuelson when indifference and revealed preferences are pre-sented. Still, however, indifference and preference are explained by using theconce pt of utility or satisfaction see Ko utsoyian nis, 1979, pp. 14-32; alsoBilas, 1967, pp. 55-82).

Second explanation Friedmans thesisMilton Friedmans irrelevance of assumptions thesis can be viewed as asecond explanation of the d iscrepan cy. M or e specifically, in his Essays in Positive Economics published in 1953, Friedman suggests that the validity of atheory does not depend on the realism of its assumptions, but on the predic-tions that it yields: also, that it is a positive advantage if the assum ptions areunrealistic see Frie dm an, 1953, pp. 8, 14). One could justify the use ofhedonism-orientated assum ptions by textbook authors in terms of this meth-odological position. Although a number of theorists have reacted againstFriedmans thesis e.g. Sam uelson, Koo pm ans, Rotwein), it can be maintainedthat it had a significant influence on econo mic methodology see Samuelson,1963; Koopmans, 1957, and Rotwein, 1959). However, none of the textbooksme ntioned explicitly ado pts Friedm ans method ologica l ideas only Millerstext and Ferguson and Goulds are sympathetic to the idea that assumptionsare not important for theories). On the contrary, there are examples of textswhich refer to the necessity of realistic assumptions. One of these texts is thatof Stonier and H ague, wh o state that the ideal would be to device assumptionswhich c om e closest to reality Stonier an d Hag ue, 1980, p. 678). Other authorsexplicitly call f or realistic assu mp tion s or reject Fried man s idea th at unrealisticassumptions are a positive advanta ge for a theory see Gra ven, 1984, p. 10 andKoutsoyiannis, 1979, p. 4). In addition , Samuelsons influential textook , w hichexplains consumer theory in hedonistic terms, but denies Friedmans thesisgiven Sam uelson s me thodolo gical position ), is ano the r example Sarnuelson,1980, p. 408).


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H E D O N I S T I C I N F L U E N C E O N M I C R O E C O N O M I C T H E O R Y 371Third explanation: implicit psychologyTh e explicit use of hedonism-based concepts m ight indicate tha t psychologicalassumptions are still implicitly present in modern choice theories, especiallywhen seen in connection with the body of criticisms of these theories. Manytextboo k au tho rs clearly feel that the studen ts will better com prehen d consumertheory if they mention things like each individual tries to maximize his satis-faction, utility m ean s satisfaction o r higher indifference curve me ans highersatisfaction level. This may indicate th at essentially choice theories presuppo sethe s ame hedon istic psychology as the marginalist theories did. Even in W alshstextbook, hedonistic examples are used when choice theory is presented. Theabove point can be connected with a variety of oth er criticisms of the moderntheory of choice.In particular, N . Georgescu-Roegen, J . Robinson and S. Wong have pointedout the dependence of RPT on an implicitly assumed utility function. Thisweakens t o a great degree the claim th at R P T is entirely free of the utility con -cept see George scu-R oegen , 1966, pp. 21 7-27; Ge orgescu -Rog en, 1976,p. 337; Ro bins on, 1962, pp. 50-1; W ong , 1978, pp. 59, 73). W. Kroeber-Rielhas indicated that RPT still presupposes an economic agent with specificpsychological chara cteri stics Kroeber-Riel, 1971, pp. 340-4). E. J . Mishanand B. Loasby have maintained that modern choice theories in general andHicksian theory in particular are better understood or make sense if utilityand utility m aximization are assumed M ishan, 1961, p. 2; Loasby , 1976,p. 23). Finally, L. Boland has demonstrated that one of the foundations ofchoice theories, the maximization hypothesis, is basically a metaphysicalhypo thesis Bo land , 1981, pp. 1032-5). In essence all these arg um ents point tothe fact that modern choice theories are not neutral or independent from allpsychological assumptions.

The implicit existence of psychological assumptions supports the view thatthe explanation of the explicit hedon istic influence on textboo ks is the implicitpresence of psychological hedonism within the very theories of choice. Thisthesis can also be supported by a more detailed discussion of the Hicksian andSamuelsonian choice theories as they were presented by H icks an d S amuelsonthemselves.

First of all, althou gh Hick s an d Allen defined indifference curv es in terms ofpreferences thus at tempting to avoid the concept of utility), the notion of satis-faction has t o be used when th e real reason behind preferences is examined a ndalso when the difference between a lower an d a higher indifference curve is dis-cussed. In addition to this, Hicks in his Value and Capital is forced in a wayto adop t a few implicit) psychological assum ptio ns. For instance , after intro-ducing the continuity assumption fo r the condit ion of the dim inishing marginalrate of substitution, Hicks states tha t the consum er will always prefer a largeramount of M t o a smaller amount of M , provided that the am oun t of X a this disposa l is unch anged Hick s, 1946 [ 19391, p, 42). This is psychologicalcharacteristic of the economic agent which Hicks calls the ideal consumer. Ino n e of his subsequent works, the assumption of a utility-maximizing agent,


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372 S . A . D R A K O P O U L O Simplicitly presen t in the abo ve passage, is mention ed explicitly see Hick s, 1956,p. 5). Furthermore, the conception of a selfish, satisfaction-maximizing con-sumer is explicitly present in Value and Capital itself, see Hicks , 1946 [1939],p. 55).The presence of hedonistic) psychological assum ptions in Hicksian choicetheory has also been identified by a num ber of theorists e.g. E . J . Mishan andB . Loasby). Loasby, for instance, in his Choice Complexity and Ignorancepoints out: Preference functions d o not logically require the old-fashionedconcept of utility; but it is much easier to believe in them if one is allowed tobelieve in utility a s well Lo as by , 1976, p. 23). On e can conclude that despiteHickss at tem pt t o create a neutral theory, psychological as sum ptions have notbeen eliminated.

As mentioned above, the prime objective of Samuelsons RPT was theconstruction of observational indifference curves, without using subjectiveconce pts such as utility). Sa mue lson emp hasized that his theory did notrequire the existence of any intensive magnitude which the consumer feels orconsults. However, in the process of his analysis he states:

i f this cost [th e cost of the second batch of goods] is equal to or less thanthe amount of money that the first batch actually cost, we have conclusiveevidence that the second batch is not higher on the individuals preferencescale than the first batch; for if it were, the individual could not have beenin equilibrium in the first place, since he would not be minimizing totalexpenditure for the attained level of satisfaction. Samuelson, 1947, p . 109)

The use of the concept of satisfaction is in sharp contrast with his previousstatement of the non-existence of magnitude that the consumer feels or con-sults. The previous quotation is not very far from Samuelsons discussion ofconsumer theory in his Principles: As a customer you will buy a good becauseyou feel it gives you satisfaction o r utility Sam uelson , 1980, pp. 408-9).Given his aims of purifying economic theory of subjective elem ents, on e wouldexpect that his treatmen t of consumer theory would be orientated tow ards thisaim even in an elementary textbook.Some theorists have criticized the very basis of R PT as a n observationaltheory. Kroeb er-Riel, for instance, thinks of R P T as a good example of an as-if-language. In these langua ges analytica l sentences or definitions ar e used a sif they were synthe tic an d factual-no rma tive theoretica l constru cts are used asif they were emp irical concepts.) Ac cording t o Kroeber-Riel, in R P T observedbehaviour is usually understood in an empirical sense although it is a puretheoretical construct Kroeber-Riel, 1971, pp. 340-4). Other theorists havedem onstrated tha t R P T is susceptible to serious criticism within its ow n frame-work. M ore analytically, Georgescu-Roegen has show n that th e weak axiomof R P T is not sufficient fo r the con struction of indifference curves Georgescu-Roegen, 1936, pp. 539-49). Th is led Samu elson with the assistance ofHouthakker) to the extension of the weak ax iom to the strong ax iom, which


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HEDONISTIC INFLUENCE ON MICROECONOMIC THEORY 373states that:

if x) > x )and x ) > x)then x) > x).

Even so, according to Georgescu-Roegen the strong axiom do es not guaran teetha t the derived indifference curv es would give com para ble at all points) com-bination of goo ds see Georgescu-Roegen, 1966, pp . 217-27). Th is argu me ntsuggests that in RPT, the existence of a regular indifference map is implicitlypresupposed, otherwise the theory is problematic. This indicates that RPTbelongs t o the same conceptual frame wo rk as the previous m arginalist theories.Th e same line of argum ent is followed by Wo ng, who emphatically states tha tRPT does not represent a break with the tradit ion of psychologically basedtheories of consumer behaviour: Consequently, the attendant philosophicaland psychological controversies of the utility theory, which Samuelson hopestQ erode with his observational theory, are not exorcised from the corpu s ofeconomy theory Wong, 1978, p. 73).

These arguments cast doubt on the view that RPT is a psychology-freetheory, a nd this implies that t he third explan ation of the re cogn ition lag in text-book material, is the most plausible one. The idea that RPT is not value-freehas gained substantial ground in the last years and this can be seen from thetextbook approach. In particular, Lipseys substitution of indifference pre-ference for R P T in the f ifth edit ion of his text is an indication of the growingconcern abo ut R P T see Lipsey, 5th edn , 1979, p. xix).

The discussion so far suggests that choice theories are not psychology-freeand thus supports the third explanation abou t the presence of hedonistic con-cepts in textbooks. This argument can also be supported by a discussion ofrecent literature which indicates the preoccupation of modern microeconomicswith utility maximization and other hedonism-related concepts.

VIRECENTEVIDENCE

A brief review of the recent literature demonstrates that in spite of Hickssand Samuelsons attempts, hedonism-related concepts are still present. Forinstance, in an article which aims to explain why self-employment and incomediffer significantly by race, Bon jas an d B ronars m ake a number of assumptionsabout the behaviour of agents. One of the most important of these is thatagents maximize their utility see Bo njas an d Brbnars, 1989, pp. 584-5). Th esame assumption is employed in an examination of private income transfers.In particular, it is assumed that parents maximize their utility when theytransfer income to heirs. This assumption is made in a paper which attemptsto exam ine the motives for private income transfers see Cox , 1986,pp. 508-46). In the sam e spirit, Becker emphasizes the appro priatenes s of the


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374 S. A . D R A K O P O U L O Sassumption of utility maximization in the subfield of family economics seeBecker, 1988, p . 3).

Apart f rom the above, the s tandard theory of choice under uncertainty isbased on the assumption that agents maximize expected utility. This can beseen in Alms article, where the individual is assumed to maximize expectedutility in a model which discusses the effect of tax uncertainty on individualdecisions Alm, 1988, pp 237-45; also Binmore, 1989, p. 88 . Moreover, thispreoccupation with the idea of utility maximization has recently been stressedby theorists like K. Arrow and H. Simon. As mentioned above, the drivetowards neutralization meant that only one assumption was necessary for theconstruction of choice theories: rationality. However, Arrow maintains thatthe apparently neutral assumption of rationality is almost always supplementedby assumptions of a different kind. The most common of these supplementaryassumptions is utility maximization, to the point that the concept of rat ion-ality in mo dern eco nom ics has been identified with it Ar row , 1987, pp. 202,203 . In order to support these arguments, Arrow gives an example whichshows the importance of the assumption of utility maxim ization. H e states tha tone can substitute utility maximization with habit formation. The consumercan still be rational a nd optimizing without aiming at utility m aximization. A she writes: fo r a given price-income chang e, choose the bund le which satisfiesthe budget constraint an d that requires the least change from the previous con-sum ption bundle Arro w, 1987, p. 202 . This app ro ac h is different fro m utilitymaxim ization, as can be seen from the fact th at if prices and incom e return totheir initial level after several alterations, the final bundle purchased will notbe the same as the initial on e Arro w, 1987, p. 202 .

H. Simon also stresses the preoccupation of many theorists with utility andutility maximization. He suggests that there is a bias tow ards th e maximizationof utility and proceeds to give an example of a decision situation where it isirrelevant but is still used because of the general attitude. He states that floodinsurance is bought by persons w ho have experienced d ama ging floods or w hoare acquainted with persons who have had such experiences. As he declares:Utility maximization is neither a necessary nor a sufficient condition for ded uc-ing w ho will buy insurance-in this case, the process that pu ts the item on thedecision agend a is the imp ortant thing Simon, 1987, pp. 31, 32 .

The preoccupation with utility maximization has to be connected with theidea of utility as a positive subjective sensatio n satisfaction). Altho ugh anum ber of theorists maintain tha t it is a purely sem antic conce pt, the m ajorityconceive it as a sensation see for instance Gravelle an d Rees, 1981, p . 62 . Thiscan be seen from Beckers identification of the similarity of the utility functionwith B enthams pleasure function Becker, 1976, p. 137 . One can a lsosee further indications of this conception in recent papers like Myersons andBatemans, where a discussion of the connection of Benthamite utilitarianismwith modern approac hes can be found see Myerson, 1981 and B ateman, 1988 .

As an a dditiona l indication of the presence of hedonistic concepts in modernmicroeconomics, one can mention examples from the m odern theory of choiceunder uncertainty. Furthermore, the conception of utility as a sensation can


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HEDONISTIC INFLUENCE ON MICROECONOMIC THEORY 375also be observed from the discussion. In particular, in their effort to accountfor some inconsistencies in the standard theory of choice under uncertainty,som e theorists have developed the regret theory. Th e basic point of this theoryis that p eople tend t o com pare their actual situations with the ones they wou ldhave been in, had they ma de different choices in the past Loom es and Sugden,1983, p. 428; Sugden, 1986). The subsequ ent analysis is conducted in terms ofpleasurable or painful sensations.

If they realize that a different choice would have led to a better outcome,people may experience the painful sensation of regret; i f the alternativewould have led to a w orse ou tcom e, they may experience a pleasurable sen-satio n we call rejoicing. Loom es an d Sugd en, 1983, p. 428)

I t is clear that this approach is not very far from hedonism, especially whenwe note that in a previous article the authors point out the similarity of theirconception of utility with that of Benthamite pleasure Loomes an d Sugden,1982, p. 807). The specific reference to the psychological experience ofpleasure, as well as the idea that agents are assumed to maximize expectedmodified utility, is another clear indication of the hedonistic connection. Moreimportantly, the conduct of analysis on an explicitly psychological basis is insharp contrast with the earlier attempts towards neutralization.

V I ICONCLUSION

Th e basic po int of this paper has been to dem onstrate the discrepancy betweenthe developm ents in consumer theory of the last five decades and the way tha tthis theory is presented by the majority of contemporary textbooks. In par-ticular, it was pointed out that in contrast to modern choice theories whichclaim t o be psychology-free, textboo k co nsum er theory is charac terized by ahigh level of hedonistic influence. Three possible explanations of this discrep-ancy were suggested: 1) pedagogic reasons; 2) Frie dm an s thesis; 3) implicitpsychology in choice theories. M y view is that th e third explan ation is th e mostplausible. Th is explan ation of the textbooks approach could be taken as areflection a nd inc orpora tion of the bod y of criticisms maintaining that mo dernchoice theories implicitly assume the psychological concepts from which theyclaim to be independent. The fact that the textbook writers need to mentionhedonistically based concepts in consumer theory implies that they arenecessary for its comprehension. This is an indication of the implicit existenceof such concepts in the theory itself.

This indication was reinforced by a discussion of some recent developmentsin the literature. It was observed that psychological concepts are still beingemp loyed; this has also been identified by a number of the orist s, specifically byArrow an d Simon , who have emphasized the preoccupation of modern choicetheories with utility maximization. Furthermore, the explicit presence of con-


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376 S. A . D R A K O P O U L O Scepts like pleasurable an d painful psychological sensations suppo rts the ab oveargu me nt. Clearly , th e implicit or sometimes) explicit existence of hedonisticnotions casts serious doubt s o n the alleged psychological neutrality of modernchoice theories. This being so it may be v aluable to reopen th e lines of com-munication between economists and psychologists to examine the empiricalvalidity of the implicit hedo nistic assum ptions.

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2 levels of hedonistic influence on microeconomic theory