My word, this is fun

Stephen Hawking on the real meaning of wealth (which he gets rather wrong) in The Guardian.

So I would be the last person to decry the significance of money. However, although wealth has played an important practical role in my life, I have of course had a different relationship with it to most people. Paying for my care as a severely disabled man, and my work, is crucial; the acquisition of possessions is not. I don’t know what I would do with a racehorse, or indeed a Ferrari, even if I could afford one. So I have come to see money as a facilitator, as a means to an end – whether it is for ideas, or health, or security – but never as an end in itself.

Interestingly this attitude, for a long time seen as the predictable eccentricity of a Cambridge academic, is now more widely shared.

Err, no, not really, standard economic structure is that wealth is the ability to increase utility. How utility is increased is entirely up to the individual, as our utility functions differ.

Or, if you’d like to put it this way, wealth is a facilitator, something that facilitates us increasing our utility.

Not unusual this, someone looking at an economic question from basic principles, getting close to the right answer but not realising that economics got there a century or more before. A better try at it that Ritchie of course, who usually manages to glom onto something which has been disproven via the same logical route but…..

Anyway, what’s really fun about this is that’s it’s a PR puff piece for a new web site run by UBS. You know, the Swiss bank and wealth management people?

15 comments on “My word, this is fun

  1. Financial companies always have the same spin: “Why buy a Ferrari? Material goods won’t make you happy. Here, put all your money into one of our funds so that we can charge a fat commission; and we promise not to lose too much of it.”

    Hawking is an odd choice of role model: what exactly is he saving for?

  2. “economics got there a century or more before”. Yeah, and the Greeks two thousand years before, and the Babylonians ….

    It’s footling to claim for economics the idea that wealth is a Good Thing because it gives you more choice. It’s especially footling to pray in aid the tautological notion of utility. Until they invent a utilitometer, of course.

    Otherwise, it’s all obvious and trivial.

  3. Non-expert Hawking sounding off about Politics and Economics.

    LOL

    I will say this clearly, I have vastly more expertise in these areas than he does, despite him clearly being smarter than me.

  4. And why is his opinion on “wealth” important, apart from the obvious reason that it chimes with the Guardian’s?

    No reason, that’s it.

    The Guardian is happy with wealth. They own large and valuable London houses, holiday villas, their editor (ex?) owns a grand piano. Wealth is fine. They dislike vulgar wealth, e.g. owning a Ferrari. They dislike people not like them owning wealth.

  5. “there’s lots of perfectly valid concepts that can’t be measured.”

    Perhaps so. But are they all tautological? Put otherwise, it seems to me that “utility” is not falsifiable.

    “Utility” hardly falls into the same class as, say, entropy, does it?

  6. It’s not really tautological, it’s definitional.

    Utility is what we call what people maximise…..the thing that people are maximising is their utility.

    The interesting bit comes from trying to work out, in detail, what is it that people try to maximise – this then guides us to what increases human utility.

    For example, does a higher income maximise utility? That we do all take time off work to do other things indicates not…..

  7. RlJ, struggling not to reach the same conclusion about Clarkson who, hitherto, was generally agreeably obnoxious and off-message.

  8. Reckon he’s in the running for understatement of the year though:

    ” I’m sad about the result, but if I’ve learned one lesson in my life it is to make the best of the hand you are dealt.”

  9. Tim, I invite you to tell me how the notion of “utility” could be falsified. And if you can’t I’ll set Popper on you.

  10. I eagerly await the thoughts of Paul Krugman on the Black Hole Information Paradox.

  11. “Tim, I invite you to tell me how the notion of “utility” could be falsified.”

    You could if you could show that the von Neumann-Morgenstern axioms were seriously violated by most people’s preferences when they make their economic decisions. (Strictly, utility functions *might* exist some of the time when they’re violated, but the most common reasons economists’ have for believing they do wouldn’t give them any assurance of that.)

    The axioms basically say that preferences are always defined (A is preferred to B, B is preferred to A, or the subject is indifferent between A and B), transitivity (if A is preferred to B and B is preferred to C then A is preferred to C), continuity (the preference for a probabilistic game or gamble can match all preferences intermediate between winning and losing), and independence of irrelevant alternatives (if A is preferred to B, then A+C is preferred to B+C).

    That preferences can always be defined is trivial, the others might not be. People can have inconsistent preferences. Their judgement of probabilities can have sudden discontinuous jumps. And they might find their preferences affected by irrelevant alternatives. Indeed, things like the Allais paradox indicate that the axioms are not generally satisfied, and faithfully representing preferences with utility functions is not possible.

    But as with a lot of things in economics, it’s just a simplified approximate model, and shouldn’t be taken to mean that if it’s not quite right that all of ‘neoliberal’/capitalist/conventional economics has to be thrown in the bin, and be replaced with whatever zany alternative perpetual-motion-machine system the claimant proposes.

    It’s wrong, but that doesn’t mean it’s not useful. If the approximation fits closely enough for most economic decisions, the predictions made will be approximately right in the same degree.

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