Utility Maximization Theory and Economics

Is the Theory of Utility Maximization Reliable for Rational Consumers to Make Decisions?
The article by Rothman about Johnson’s book focuses on the topic of how most people use “bounded rationality” to make their decisions—that is, they do not use a true scientific process when deciding what to do with their lives. Rather they make choices based on constrained circumstances: they do not push the parameters of their knowledge or seek out all options and explore all possibilities, weighing pros and cons with statistical rigor. The reason is that most people prefer to follow whatever impulse feels right after a cursory examination of the situation, without expending a great deal of energy on the matter. They may spend two weeks deciding what type of laptop or car to buy, but that is because the specs have already been quantified for them: they only need to compare the numbers and the advantages or disadvantages. When it comes to their own lives, they do not know how to quantify the pros or cons of this or that decision. Thus, it is much more difficult to apply the theory of utility maximization, which stipulates that people spend their money trying to maximize the value of every dollar they spend. The reality is that many people do not do this at all. Many consumers are impulse buyers when all is said and done: the entire sales industry is based on the assumption that consumers are moved more by impulse than by well-reasoned argument or scientific approach to decision-making.
Johnson argues that a decision is a value-maximizing equation—but this is not necessarily true for everyone. Many are the people who never learn math and never want to learn it. The same goes for decision-making. They are quite content to make decisions based on intuition, gut, cursory examinations and impulse. There is a thrill in consumption that is akin to going to the race track. It is like briefly reading the horses’ names and then placing one’s bet. Will one’s purchase pay off? Some buyers buy for the sheer thrill of it. Johnson assumes all decisions are made rationally, but rational decision theory has its limitations.
In my own life, for example, I am very much an impulse buyer and I hate spending much time on any kind of decision. I have never liked making lists of pros and cons because I find it impossible to weigh them against one another. I could make a list as long as I wanted or as short as I wanted, in the end I would be no nearer a clear decision than when I started, and if anything I would only be all the more filled with doubt—like Hamlet unable to act because there is too much going through his head. I prefer to give things a good once over, perhaps do a little investigating, ruminate a bit, confer within myself, and then go with whatever impulse is strongest. This is akin to using my intuition, but at the same time I like to know a little bit about what I am getting into. I just do not prefer to analyze it to death or quantify it to any degree. I generally know what I am looking for—but up until I make a purchase I could not tell you exactly what I am going to get, for ultimately I know that I can easily be swayed by whatever I find to be available at the moment that I decide I am going to make a purchase.
Part of my approach may be simply based on the fact that I detest shopping altogether, so I prefer not to be bothered by it. Once I make up my mind to buy something I want to get it over with as quickly as possible and all my thoughts on the matter suddenly become subordinate to the fact that whatever allows me to get the process over with as easily as possible is what I will end up doing. I am, in short, the antitheses of Johnson’s rational decision maker, of his value maximizing decision maker. For I do not trust myself to make good decisions at all and generally accept the fact that no matter what decision I make there will be something wrong with it in the end, so why fret about it? That is my general attitude. It is decidedly not very scientific.
One public policy decision that could be said to illustrate the points made in the article would be Trump’s foreign policy decision to remove soldiers from Syria. He campaigned on the promise to end the foreign wars in the Middle East and now he appears to be making good on that promise. It is upsetting to many because many would like to see the wars continue. Friends of Israel want to see more war in fact: they want Trump to wage war on Iran. Trump, however, has weighed the pros and cons and found the wars to be far too costly and not in America’s best interest. He says the soldiers could be better put to use on our own borders: why are they guarding Syria’s or worrying about protecting the Kurds? If they are going to be used, let them be used to protect Americans. His decision is based on the argument that too much money is being spent in the Middle East and there is no return on this investment. Thus, his decision is rational and based on value maximization theory.
Should the argument developed in the Rothman article cause us to reject standard microeconomic theories about consumer behaviour? Not at all. Just as no two people are the same, no one theory can perfectly explain the behavior of people. Multiple theories should always be considered when attempting to explain consumer behavior. Using only one is like putting blinders on and blocking out what is to one’s left or right, seeing only what is right before one’s own nose.
Works Cited
Rothman, Joshua. “The Art of Decision Making.” The New Yorker, 2019. https://www.newyorker.com/magazine/2019/01/21/the-art-of-decision-making