Published Apr 29, 2024 Interpersonal comparisons refer to the evaluation or analysis of the preferences, utilities, or welfare levels of different individuals relative to one another. In economics, this concept is particularly relevant in the context of social choice theory, welfare economics, and utility theory, where it raises questions about how to fairly compare and aggregate the well-being of different people into a coherent social welfare function or policy assessment. Imagine a simple scenario involving two friends, Alice and Bob, deciding how to spend a shared lottery win. Alice prefers spending the money on books and educational materials, which she values highly due to her passion for learning. Bob, on the other hand, finds greater joy in travel and would prefer to use the money for a shared adventure. Making an interpersonal comparison in this context would involve evaluating the intensity of Alice’s preference for books against Bob’s preference for travel to arrive at a decision that attempts to maximize their collective satisfaction or utility from the lottery win. This example simplifies a complex issue, highlighting how challenging it can be to make fair comparisons between the utilities of different individuals, as people derive happiness, satisfaction, and utility from vastly different sources and in different magnitudes. Interpersonal comparisons of utility are crucial for informing public policy and economic theory, especially when decisions need to be made about the allocation of scarce resources, taxation, social insurance, and redistributive policies. These comparisons are at the heart of debates on equity, justice, and the role of government in redistributing income or wealth to achieve social welfare objectives. However, the concept is fraught with philosophical, ethical, and practical difficulties, as it challenges us to quantitatively compare subjective experiences of happiness, satisfaction, or utility across individuals with diverse preferences and life circumstances. Interpersonal comparisons of utility are considered problematic because utility is subjective and difficult to measure directly. Every individual has unique preferences, experiences, and thresholds for satisfaction, making it challenging to objectively compare or quantify one person’s happiness or welfare relative to another’s. Additionally, the subjective nature of utility complicates the development of a universally accepted methodology for these comparisons. Economists and policymakers employ various methods and tools to address the difficulties of making interpersonal comparisons, often relying on normative judgments and assumptions to construct social welfare functions. For instance, they might use compensating principles, which suggest that if a policy makes one person better off without making anyone else worse off (Pareto efficiency), it can be deemed beneficial. Additionally, economists might apply principles of redistribution based on marginal utility, assuming that a dollar’s worth of income or wealth yields higher utility to a poorer person than to a wealthier one, to justify progressive taxation and social spending. While the subjective nature of utility presents inherent challenges, attempts have been made to quantify and compare well-being or utility indirectly through observable indicators, such as income, consumption, health status, and subjective well-being surveys. These approaches, while not without their limitations, provide empirical data that can inform analyses and debates about welfare, inequality, and the effectiveness of public policies. Nevertheless, such comparisons still rely on assumptions about the relationship between these observable indicators and underlying utility, making the process inherently subjective. The implications of interpersonal comparisons for social welfare policies are profound. Acknowledging and attempting to make these comparisons underpins the justification for progressive taxation, social insurance, and redistributive policies aimed at reducing poverty and inequality. By evaluating and comparing the welfare impacts of different policies on various segments of the population, policymakers can design interventions that aim to maximize social welfare in a manner consistent with societal values and ethical frameworks regarding equity and justice. However, the contentious nature of these comparisons often fuels political and philosophical debates about the extent and means of redistribution and the role of government in addressing inequality and promoting social welfare.Definition of Interpersonal Comparisons
Example
Why Interpersonal Comparisons Matter
Frequently Asked Questions (FAQ)
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Economics