Monday, June 28, 2010

Challenging Everyday Economics: Utility

After the crisis, it became common to criticize mainstream macroeconomic theory. I would like to go further and criticize mainstream microeconomics, specifically, utility theory.

I have been inspired by my desire to explain my seemingly irrational act of paying TRY 34 (about USD 22) for a 220 milliliter bottle of genuine  Vermont maple syrup, which would not normally go for more than 4-5 bucks in New England.

My friend, being an Econ. major and ex. Econ. consultant @ NERA, tried to console me by highlighting the utility that I would get from it. But then it should be that my utility, at least in the case of maple syrup, should be a function of the time I have not been able to consume it- sort of a craving effect.

That's hardly revolutionary; in fact, I have seen quite a bit of models that adopt a similar utility structure. But it does illustrate the fragility of even the taken-for-granted micro. frameworks.

By the way, I used to pay a huge premium for raki, Efes, baklava and Turkish food when I was in the U.S., and I like to splurge myself in U.S. style steak at Dukkan and sushi from time to time in Istanbul. None of these would make sense to the basic models of undergrad. micro.

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