Sunday, October 21, 2012

Ethics and Utilitarianism

As an Economics newbie, studying Return on Investment(ROI) this week was fascinating. I think most people understand it conceptually by asking themselves, "Is this worth it?". 

Is it Worth What?

What does "worth" mean? In Dr. Norm Becker's blog post, "Why Do Thieves Steal Famous Paintings That Cannot Be Sold?", I'm reminded of utilitarianism, and how definitions of value and utility vary greatly from person to person. As we continue through our education @BGI our capacity to assign numerical numbers to values such as "carbon emission" or "lives saved" will grow. I do believe in the power of numbers, as we can utilize them to aid understanding of the context of our dying world.

And yet, I find myself thinking that these numbers will ever be truly "accurate", because value-systems are so amorphous. A thousand dollars very different things from one person to the next. 

This is important, because numbers matter. We need to do the calculations, we need to understand the picture, and numbers provide a context for that framework. In a digital picture, numbers might represent the amount of blue pixels contained. High values might indicate that the picture has a blue hue, but it doesn't go further than that. Just because a particular investment might have a positive cash NPV, doesn't mean it's the right decision.
The Valuation of Money

What a weird concept.  Particularly as the U.S. currency is described as "Fiat money". How do we assign "value" to something that is structured around a belief system. That said, I understand the importance of currency as a medium of exchange, and don't necessarily believe that a currency has to be "backed".

How do we value services? How much more are we willing to pay for "good" customer service? What's the value of hiring people who are currently unemployed? How much is a picture worth? Or a Christmas tree? What about solitude?

People, Planet, Profit

Something about the "Profit" aspect makes me uncomfortable. I think my personal term would be "Prosperity".

Prosperity manifests in many forms, financial, environmental, social, etc. Using the word prosperity also allows multiple value systems to determine worth. In industry, having prosperity on your bottom line, gives you the motivation to really increase your gains on all fronts! This includes financial prosperity, as not including capital within your business plan could be detrimental!

Macroeconomic Theories

It's funny, as I was researching the "lack of critical thinking" within our educational model, I stumbled across an article discussing the lack of critical thinking within multiple macroeconomic theories.

The summary? There is no such thing as perfect rationality in economics. Likewise the reliance on behavioral economics that people will make "predictably irrational behavior" is an oxymoron. The empirical approach to studying our economy takes place "between perfect rationality and equal incompetence". 

I've always been a believer of balance and context. Particularly when it comes to human behavior; Whether it's recognizing numbers in an ROI as simply setting the context for an investment, or acknowledging that BOTH nature & nurture play a role in development. By truly understanding the context of decision-making, we will be able to make the best and informed decisions.

Gregory Mitchell, the author of the article summarizes it well, "While this middle ground position makes general theory development more difficult, it illuminates ways by which the legal system may foster rational behavior or counter irrational behavior".

Mitchell, G. (2002). Why law and economics' perfect rationality should not be traded for behavioral law and economics' equal incompetence. Georgetown Law Journal, 91(1), 67-94,96-167,95. Retrieved from


  1. Aric -I can tell I am going to really enjoy your posts. The succinct argument for the use of "prosperity" versus "profit" is brilliant. I would much rather have a company where my TBL included it along side the planet and the people.
    I too am am believer in balance and context and look forward to your perspective over the next two years.

    1. Thanks! Yay for balance! Definitely looking forward to our future discussions.

  2. Aric, I contend that people + planet + profit = prosperity. I understand your argument, but I think that the use of the word profit is intended to underscore the fact that we're still talking about business.

    Your discussion of value resonates with Dan Ariely's book "Predictably Irrational" (the oxymoron you mentioned later). Ariely challenges the traditional notion of supply and demand by considering how an initially arbitrary determination of value creates a context from which all future value is determined. He is obviously speaking from the behavioral school of thought; however, I think it's worth looking at in depth (as well as the rational school of thought) prior to arriving at the Hegelian conclusion of the Mitchell article you quote here. As you point out, the answers usually do reside somewhere in the middle.

    1. Daryl, I definitely agree with you.

      I thought about attempting to delve into that topic, and my brain kind of collapsed on me.

      My one-sentence summary; Business is in the exchange of goods and services, money is our method of exchange, valuation of money and other factors(social/environmental) impact our business decisions.

  3. Aric!

    First off, your blog looks sooo pretty! It is so nicely laid out and easy to follow.

    I totally agree - I don't think it is extremely difficult to know what the value of the ecosystem and resources are. I think that we will ever truly know the value of certain resources are gone and we see the effects. But I do see the value of assigning number now - especially for someone like you who LOVES numbers. :)

    1. Molly!

      Thanks! It's weird, I have a love/hate relationship with numbers; To me numbers are a form of language, and language is powerful! It's important to respect that power, AND not to make any assumptions about the messages we "receive"(whether interpreting NPV or something someone says).

  4. Aric,

    This really is a fantastic post!

    I think you provide an important way of understanding the tensions and contradictions inherent in wanting to apply numbers and ratios to describe the value of the life-sustainaing ecoservices of the planet and other hard to quantify concepts and states of being such as the solitude example you describe. The solitude example leads me to consider how one might quantify the value of solitude.

    When I think of solitude, personally, I find it peaceful. This is especially true if it's in nature and ideally around pine trees and wet northwest weather. I think of the Mt. Tabor neighborhood.

    Mt Tabor as a neighborhood has much that is valuable about it in regards to the multigenerational investments made towards creating a livable neighborhood: trees, bike-centric streets, quiet, calm streets, etc. The crowning jewel of the neighborhood in which I live is definitely Mt. Tabor. Mt. Tabor is an expansive park that's situated atop a dormant cinder cone volcano.

    What I don't know how to do yet is how to go about assigning a numerical value, but as I write this and reflect I can see that a livability index could make sense.

    If we could use such an index I supposed that we would see a direct relationship between financial wealth of a neighborhood and a livability index value/ratio.

    Thanks for opening up this line of thought, I've thought about it to some extent before (especially in relation to this neighborhood), and your discussion really helped me develop it a little further. Thanks!

    1. Thanks Hex!

      So interesting... The value of solitude... On the flip side, I'm reminded of my own personal desire to move out of the cities, living on several acres of land where I can't see any of my neighbors(not that I don't have relationships with them though). I've got a farm, and probably quite a few people staying with me, but I'm away from the business of the city... But this also contradicts my desire for living in cities, the importance of urban infill, the inherent larger community and diversity that cities provide...


  5. Aric,

    I found your description of prosperity to be quite interesting...... and I could not agree more. Unfortunately, I also wonder if it's the negative manners in which profits have been utilized by some that give this word its bad image, as opposed to anything being inherently wrong with the term itself?

    I wonder if you could say a bit more about Gregory Mitchell's quote and what you see in terms of the connection to economics; "While this middle ground position makes general theory development more difficult, it illuminates ways by which the legal system may foster rational behavior or counter irrational behavior". Would love to hear more.....

    I cannot even begin to fathom how difficult it will be to assign values to our natural resources.... it sounds like Price Waterhouse Coopers is already trying to move in this direction, and I am so very curious to learn more about their approach and how this will impact future attempts to both assign value to our natural world and measure externalities..... the latter might be an easier feat.... and an easier place to begin?

  6. Hava,

    Absolutely! I think that quote really speaks to "Systems Thinking". The more we can understand the context of this bigger picture, the more effective we will be at enacting change! Instead of knee-jerk reactions to economic variables, using systems thinking and asking, "Why is this happening, and why is THAT happening, and THAT, and That...".



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