Consumption As a Compromise Between Self-regarding and Other-Regarding Interests
People need to consume to meet both subsistence and cultural desires. However, such consumption is always vulnerable to unexpected events. We have grounds to
Sections 2.3.2-2.5.2 first appeared in Aruka et al.
(2013)© Springer Japan 2015
Y. Aruka, Evolutionary Foundations of Economic Science, Evolutionary Economics and Social Complexity Science 1, DOI 10.1007/978-4-431-54844-7__2 believe that household demand is not simply the sum of individual demand because families share desires and consumption. We assume instead that consumption behavior of each unit of a household is a compromise between self-regarding and other-regarding interests. Many economists have argued that other-regarding interests are indispensable for ensuring that consumption conforms to social norms. As Aruka (2004a; 2011, Chap. 7) pointed out, humans tend to adopt an attitude of other-regarding behavior. Even if the household is composed of a single person, we should still not jump to the traditional idea of pure individual subjectivism. In general, the person cannot be considered as a self-regarding machine restricted to his innate original preferences. He has his own social status, so will be induced to take into account his learning experiences to adapt to socially arranged modes of consumption. His consumption pattern cannot purely operate on his innate preference list, or be separated from the external world.
However, historically, the design of the demand function has very much focused on individual subjectivism. In other words, the market demand is naively assumed to consist of the sum of all individual demands directly derived from individual utility maximization. The first approach to developing an individual utility function, designed to derive an individual demand function, is almost religious idealism. James Mill, who contributed to the development of neoclassical economics, regarded the innate original preference as “permanent personal identity”, or the mind in itself.
This leaves no room for any state-dependent decisions. In terms of standard economics, therefore, the mind in itself may be replaced with intrinsic rationality. Its feasibility could be guaranteed by “free will”, though emotional and ethological reasons can temporarily invalidate individual rationality. Intrinsic rationality, in the classical sense of the mind in itself, was historically argued to have irrefutable properties, which could not be checked in experiments because rationality belongs to some divine world, logically irrelevant to the real one.[26]In standard economics, intrinsic rationality has the following properties for consumer preference:
1. reflexivity
2. completeness
3. transitivity
4. continuity
5. monotonicity
6. convexity
The first four properties are necessary to guarantee the utility function, and some weak convexity in the preference relation is acceptable. The so-called indifference map described in textbooks on microeconomics is not indispensable. Mathematical economics in the twentieth century discovered that there is isomorphism between the preference relation and the utility function. This was innovative, as long as intrinsic rationality is universal. The utility function is defined as equivalent to preference ordering in the domain of multiple commodities. The utility function in economics can usually give a unique value to each set of commodity baskets through an affine transformation. These properties guarantee possible preference relations to the maximal elements to guarantee the individual utility function.
2.1.2