Economies of scale, as it turns out...

Russ Roberts of Cafe Hayek offers an answer to the Kling-Cowen discussion on Hotelling-Simon puzzle. Kling follows Hotelling ("oil prices rise at the rate of interest"). Cowen rises the Simon's finding ("natural resources get cheaper over time in real terms"). Roberts reconcile the two with "creativity and innovation". His coblogger, Don Boudreaux, on the other hand, invites us to think of mosquito sucking on a balloon of blood. It's the size of the balloon that matters. But we don't know for sure how much blood the balloon has.

... and they said: don't blame it on OPEC

As if commenting on Adelman (see my earlier post), OPEC's president pleas not guilty -- or, as you read the piece, not solely. He also points on other non-OPEC members, speculation, so on. How about Bush's war, President?

One Terabyte!

Have you experienced bugs acting for YOUR advantage? Gmail, the email vehicle provided by Google is having "problem" with the new service. Instead of providing a free 1-gigabyte storage to users, for some reason, we get 1 terabyte! -- "too bad", they said this was a bug...

India's Djatun

In Indonesia, we have Dorodjatun Kuntjoro-Jakti. As an economist, he is one of the bests the country has. But history tells, being a good economist doesn't mean you can be a good politician. Now, India has just appointed Manmohan Singh as its next prime minister. Singh is a well-known economist trained in Cambridge and Oxford. He has been the man behind Indian liberalization. However when it comes to politics, "...He's miserable..." -- or so says Jagdish Bhagwati, Singh's friend.

It's not the deposit. It's the management!

Scroll down a little bit, you'll find my earlier post commenting skeptically on Indonesian's Minister of Energy and Mineral Resources overconfidence on Indonesia and OPEC in regards with oil price hysteria. Now, this news confirms my distrust. We are now a net CRUDE importer! (It's widely known that we are not good enough to refine our own oil. But now, even the crude we have to import!) We really have problem inside. It's the bad management.

Oil will not perish. Not in our lifetime...

Reading discussion on oil by Kling and Cowen, I follow Cowen's link to Julian Simon's bet with Paul Ehrlich. Eventually Simon wins. Does this mean Hotelling (a finite resource will increase in price by the same as the interest rate) was wrong? Or, just like Cowen said, we simply are confused?

Countdown, mixed feeling

I am leaving back for Indonesia. It's been four years since I last saw Jakarta, and eight years since I visited Makassar, my hometown. Have been looking forward to come home. To places I love. To people I long for. Then enter... this mixed feeling: Graduation ceremonies yesterday and the day before, they were so ... -- can't find the word. Now, feel really sad to finally leave this campustown. And nice friends...

Rationale for Bush's war

An opinion in Arab News introduces an interesting study by an Illini senior, Devon Largio. She has been studying the rationale for Bush's war in Iraq. One of her findings is that Bush switched focus from Al Qaeda to Iraq (i.e. Osama to Saddam) even earlier than 9/12/01 (as told by Richard Clarke). Here is the link to the thesis.

Stop coffee-ing? No way.

I appreciate advices. But against drinking coffee? Wait a minute.

The Commons

Kiesling recommend this new blog, The Commons. And I think it's worth it.

... and can we trust other members?

Indonesian Minister of Energy and Mineral Resources who is also the acting secretary-general of OPEC is confident that OPEC members would agree to increase oil production ceiling to stabilize price. As for me, I have little faith on cartel. Are we going to be 1980's Saudi Arabia? Or can we just rely on cooperation from non-OPEC members like Russia, Mexico, and Norway? My hunch is, no.

Economics of oil, again (and blame the problem on OPEC, again)

So everybody is talking about a recent article by oil economist, Morris Adelman in Regulation. (To my regret, I was lazy when I wrote a paper on this issue for Resource Economics class). Adelman goes "...There is not, and never has been, an oil crisis or gap. Oil reserves are not dwindling. The Middle East does not have and has never had any 'oil weapon'.". Commenting on U.S. policy, Adelman writes "... From the Nixon White House to the present, all administrations have approached oil and energy with command-and control policies. None of them attempted to analyze the problem using the price mechanism...". He conludes, "... U.S. policies are based on fantasies not facts: gaps, shortages, and surpluses... The myth is part of the larger myth that the world is running out of oil".

The Six Duos

So here they are. The candidates for the next president and vice president of the Republic of Indonesia. To me, it is down to 2 pairs: SBY-JK and AR-SY -- in that order.

Hat tip to Blogger

I just noticed Blogger has new face. More and more cool everyday. I am posting through email now.

"Six degrees of separation" for power elite

Alex Tabarrok of Marginal Revolution introduces a very cool website created by Josh On. This link brings you to Alex's post. It has an example of how the New York Times relates to Pepsi, Sears-Roebuck, Lucent Tech, etc. Are all these business giants necessarily biased to the left? Well, maybe not. Economics doesn't really care with political ideology.

Oil so expensive

Just came back from a long trip. Driving to Washington DC, New York, and Boston, I found gas prices so high. Paul Krugman explains about the oil crunch. He argues, "...We can neither drill nor conquer our way out of the problem. Whatever we do, oil prices are going up. What we have to do is adapt...". He also mentions that oil prices hike has something to do with big populations in China and India: "...Lately we've been hearing a lot about competition from Chinese manufacturing and Indian call centers. But a different kind of competition — the scramble for oil and other resources — poses a much bigger threat to our prosperity...". The latter bothers Tyler Cowen, who thinks Krugman is being inconsistent with his stand on free trade: "...I am surprised to see Krugman so qualifying his former belief in the virtues of free trade. Keep in mind that the core theory of international theory is a barter theory. "The Chinese buying oil" and "the Chinese selling bicycles" are just two sides of the same coin. If you don't think one can harm the U.S., you shouldn't, in general, think the other will harm the U.S. either. (Of course if your vision of free trade is we get the bicycles but give up nothing in return, we are worse off relative to that state of affairs!)..."

Paatje is still the same!

After four years of not seeing him, we finally met again yesterday. I was a little worried... I was told that I should expect to see an aging man. He'd been always my role model. A man with integrity, commitment, faith, and power. And, high quality sense of art and humor. Yesterday, I saw him again. Was so relieved: he's still the same person.... Good to see you back, Dad!

El Norte

His name is Enrique and her name is Rosa. They are brother and sister, survived from murder attempts by their parents killer in Guatemala. They are trying to find a good life in the North. El Norte, the United States of America. What they do find is hardlife. They loose more than they get. Rosa looses her soul. Enrique looses her sister. El Norte is no paradise....
Good movie. As Ebert introduces it: this is an American epic...

Spoiled BraD

I knew it! Of course Brad is happy to be an intellectual giant. Oh, narcissism...

Got one giga?

Google launches a webmail with huge capacity and without popups. Sign up here (Note: this is a beta version and for now, it's exclusive for Blogger users).

Maddux, not Clemens -- Aria's protest

Commenting on my post yesterday, Aria seems bothered by Solow's comparing Clemens to best economists. He believes, it should be Maddux, his favourite. Sorry, I know nothing about baseball! Aria recommends me to read the bestseller Moneyball.
By the way, thanks for the link to a guy who declares DeLong as his blogger hero -- I'm not kidding!

Wheelan said it all

In Naked Economics, Charles Wheelan writes about how important human capital is:
"... I once interviewed Robert Solow... I asked if it bothered him that he received less money for winning the Nobel Prize than Roger Clemens, who was pitching for the Red Sox at the time, earned in a single season. 'No', Solow Said. 'There are a lot of good economists, but there is only one Roger Clemens.' That is how economists think..." pp.100.

The Sixth Ebertfest is coming to town

The Sixth Roger Ebert's Overlooked Film Festival is coming. Checked on to my calendar: "My Dog Skip" and "Once Upon a Time... When We Were Colored". What I like from Eberfest is discussion following movie screening. For this year, Ebert promises, there will be a surprise guest onstage after My Dog Skip. Kevin Bacon or Diane Lane?

Why I don't care with "fair trade" coffee campaign

I am a coffee addict. Lately, all coffee houses that I go to offer "fair trade" coffee. Even Starbucks claim to only use coffee from fair trade (I don't buy their claim). The idea is to protect small coffee farmers. But I am always suspicious with this kind of "protection". Because there is always room for manipulation in the middle. And as this article notes, "...another sticking point inside the movement are the requirements for being certified. Germany's Fair Labeling Organization (FLO), which certifies all fair-trade coffee in the world, charges farmers $2,431 to certify plus an annual base of $607 for recertification and $.02 per 2.2 pounds of coffee sold under the fair-trade label..." And you say you're helping the poor farmers?

Of course it's exclusive!

Is there a single organization in the world that is NOT exclusive? This whole criticism against certain political parties for being "exclusive" really annoys me. For example, one party is accused for being exclusive only for a certain segment of muslim population. Other is "exclusive" for being open only for christians. The critics say they can't accept such "exclusiveness" because it will lead to antidemocracy. To me, the criticism is just another form of religio-phobia. Why are those critics fine with political parties that are "exclusive" for "nationalists", "exclusive" for labor, etc? The worst thing is that, they seem not to understand that any organization is inherently exclusive. If an "organization" is open to all types of segment, personality, religion, education, etc, then why was it formed in the first place? By definition, organization is a group of people with the same objectives. Repeat: the same objectives. Is it possible that everybody's objectives are the same? No. That's why you form an organization. And that means: exclusive!

Moving more leftly?

I wrote once that I was a moderate, libertarian leftist. Yesterday Aria and I drove up to Chicago. We listened to Al Franken's audiobook, "Lies" (I hate long titles, so check it yoursef). Interestingly, I found myself agreeing to almost all of his argument against conservatives. Maybe it's not really the ideology that I am against with, totally. But I surely hate Ann Coulter, racist Russ Limbaugh, and especially King Liar Bill O'Reilly. Maybe that's why I agreed with all the bashes by Franken. Even though he seems to have big mouth too, sometimes. Am I liberal?

Dangerously comfortable zone

Had a chat with a colleague over the phone. He is a deputy director of leading research institute and also a respected economist. He was concerned with the fact that most bright, young scholars have been spoiled too much by the media. The information business is making good deal of money selling academicians into the public. Doesn't matter you're really capable or not. As long as you can talk with confidence, the media will grant you a celebrity label on your chin -- even though you are cheap talking. Some get really spoiled. They think they have achieved everything, while in fact they are rotting themselves. We agree, no matter how busy we are with projects, pursuing academic achievement should never stop. Otherwise, we're entering that red zone. One way to avoid this, we figure, is to maintain professional network with international academia.

First mover advantage vs "Burn the ship" strategies

I offered my rationale and strategy for voting: "... Before you vote for a particular party, let your friends (and enemies, if you have some) know that you will. Make sure you reveal your preference...".

Aria Novianto, on the other hand, offers a "first mover advantage" theory: "...In the bargaining game first mover has a huge advantage. Especially in short (one) period game. First, you set your terms, what you really want out of the candidates. Offer your support to your first choice candidates, their only options being to accept or reject your terms. If it's still early in the game, they know you have the option to offer it to others.... know this is too simplistic, but in general first mover has an upper hand....".

It appears, we are looking at voter's behavior from different perspectives. Aria limits other peoples' options, make them accept his terms, because that's the better choice they have left with. Mine is, to limit my options, in order to increase my commitment, while trying to persuade others. The latter follows "burn the ship" strategy of General Tariq bin Ziyad in the war of Gibraltar.

This guy loves Rubin and hates Mankiw

I wrote once, Krugman likes Rubin. Here's more by Paul himself.

"...it's pretty clear what John Kerry's economic philosophy will be. He's surrounding himself with advisers closely tied to Bill Clinton, and even more closely tied to Robert Rubin, the legendary former Treasury secretary. In office, we can surmise, Mr. Kerry would follow a Rubinesque strategy of bringing long-term budget deficits under control through a mixture of tax increases for upper-income families and spending restraint. No doubt he would move slowly on deficit reduction as long as the economy remained weak, but his advisers would tell him, as Mr. Rubin told Mr. Clinton, that responsible long-run budget policies are good in the short run, too, because they help keep interest rates low...".

And, he really hates Mankiw: "...George Bush has, of course, tried to be the anti-Clinton in all things. His advisers rejected Rubinomics and hearkened back to Reaganomics, insisting that long-run tax cuts, never mind the effect on the budget deficit, are the key to growth. For three years, they've had nothing but red ink to show for their efforts. Now they've had one good but not great month...."

Romer on tragedies of the commons

Attended a talk by Stanford's Paul Romer on the tragedies of the environmental and intellectual commons. He argues that assigning property rights to environmental commons has been proven effective in many cases. However, when it comes to "intellectual commons", property rights system has to deal with way more complex an issue. He uses downloadable music as an example. It's very hard to impose property rights or royalty system in that particular market. Napster has pirated, been sued, reborn again with supposedly legal face. iTunes is more legally careful. But still, you can't stop all the illegal downloadings. How to solve this? Romer (and I agree) points out that the big chunk of rents go to the record label companies. They are the ones who inflate the price of ideas (read: music). [I am told by a friend once that Dave Matthews has solution to this: leave record companies, do life concerts].

Another good point from Romer's talk. He said, the Who's guitarist Pete Townsend was the founder of feedback (this is a technique in twisting sound in guitaring). What if Townsend assumed a monopoly rights to it? Meaning, everybody who wanted to use feedback technique has to play royalty to Townsend? Then we would never heard of Jimi Hendrix improvisation.

But I have a small problem with Romer's matrix. He graphs a matrix of commons against property rights. In the first column are environmental commons, and second intellectual (he used "ideas"). Listed in order of strength in property rights protection imposition in the first columns are land (100% protection), fresh water (about in the middle), and common pastures and fish in the ocean (both are 0%). In the ideas column, list include recorded music (100%), pharmaceuticals and "cross-docking" [like what WalMart does] (about in the middle), and PCR (polymerized chain reaction -- I have no idea what this is) and oral rehydration therapy (both are 0%). Look closely. In fact Romer mixes up between private goods and public goods. Land is 100%. Sure, because it is (in almost all cases) very close to being a private good (of course "assigning property rights" is trivial. You don't even assign it! It is earned). And recorded music, being more complex, is a quasi-public good: it's nonrivalrous, but it's excludable (trust me). He should have been more clear on this.

Update: My friend Basanta Dhungana has additional observation from the Romer talk yesterday. Basanta summed up: "...[Romer] opined that knowledge that generates knowledge (knowledge spill over) should not be regulated with full property right. Assigning full intellectual property right precludes other to innovate further. Therefore, government should invest on such knowledge based innovation..."

Econ: Toughest after CS, Phys, and Math?

Craig Newmark, guest blogger of Marginal Revolution writes on graduate study in economics. Interesting. Among all: "... of 28 graduate fields, economics ranks fourth-toughest (below computer science, physics, and math)...". Craig quotes this from an article by Roessler in econphd.net. The article also has tables of GRE score comparisons and econ depts rankings.

Cap-and-trade not good for mercury?

So one of my committe members asked me in my defense day. Why so bother with PCB pollution? Those heavy metals stay at the bottom of the lake. How should that be a concern for homeowners? As I noted in some footnotes, these pollutants may cause cancer and other defects. I should have really moved them from footnotes to the text. Today Krugman writes about policy on mercury, one of the PCB substances. He goes further as to assess the recent policy administered by the goverment, the cap-and-trade policy. He points out that C&T is only good for light pollutants. But it would be wrong to use it to control heavy metals. As for mercury case, polluters would rationally buy the permits and... we're waiting for the next Chernobyl.

Movies and economics

I was thinking last night about home. I pictured myself back to classroom, trying to make economics less dismal than what appears in textbooks. Among others, I will most likely teach Environmental Economics. The toughest part, I believe, is to convince students that this topic is important. Alas, they won't pay attention if it is not interesting. Should I just go with the standard procedure: intro - externality - social cost vs private cost - optimum policy - valuation technique - current issues - exam? If I go that way, more than 50 percent students would yawn in my classes. So here's what I'm going to do. In the first day, I will have them watch "Erin Brockovich". I will ask them to write a review for me. In the next meeting, I will discuss what "externality" is, using that movie as the illustration. Throughout the semester, I will also entertain them with "A Civil Action". Get the idea? Indeed, if I have to teach business class, I would prepare movie session with "Wall Street". Similary, "Rosencrantz and Guildenstern are Dead" for game theory and probability classes, "Disclosure" for labor economics, "It's a Wonderful Life" for risk and uncertainty class.... [stop me, I could go on and on....]

D'oh!!

The Simpsons stars are on strike for raise. Dan Castellaneta (Homer), Nancy Cartwright (Bart), Yeardley Smith ( Lisa), Julie Kavner (Marge), Hank Azaria (Moe and Apu) and Harry Shearer (Mr. Burns and Ned Flanders) are "... demanding a a salary of $360,000 per episode, or nearly $8 million for a 22-episode season. Each actor currently is paid $125,000 per episode, the source said..." Some say this is too much (peek up at alt.tv.simpsons). But come to think of it, The Simpsons contributes more than $1 billion a year for Fox! If Ray Romano can get $1.8 million per episode of Everybody Loves Raymond, why can't Homer and friends get some increase? Go for it, Homer!

Fish had hands?

Amazing report from Scientific American (subscription might be required). A team of Univ. of Chicago scientists found a fossil of "tetrapod" -- swimming creature with four hands, from 365-million years ago. Read longer account from Science (with a link to pdf version).

Smear without Fear

Krugman goes light today, and I don't think I want to use other phrase to discuss his column: Smear without Fear -- it really fits, already. This is about Letterman's Night Show's take on Bush last week. Letterman diplayed a clip showing a boy got bored with Bush delivering a speech. The boy's gesture was extremely funny. When I saw the rerun (I was then waiting for a connecting flight from Denver to Bloomington in O'Hare airport, Chicago) in the CNN, I couldn't help myself laughing outloud. But, honestly, I wasn't sure if it was real or not. I didn't even notice it was originally brought by Letterman. Anyway... Krugman writes about it today. The story about how the CNN anchor Kagan had to explain what was "supposedly" going on (allegedly under White House pressure), how Letterman denied it, etc are even funnier than the show itself. It appears that Krugman just got another small little side weapon to attack W. A quote for you:
"... And administration officials shouldn't be able to spread stories without making themselves accountable. If an administration official is willing to say something on the record, that's a story, because he pays a price if his claims are false. But if unnamed "administration officials" spread rumors about administration critics, reporters have an obligation to check the facts before giving those rumors national exposure. And there's no excuse for disseminating unchecked rumors because they come from "the White House," then denying the White House connection when the rumors prove false. That's simply giving the administration a license to smear with impunity..."

Reading Rubin

My pick for in-flight reading in my trip to DC and CO was Robert Rubin's memoar, "In an Uncertain World". I haven't finished it, but it sure is a really entertaining reading. Chapter One was about the Mexican 1995 crises and how the White House, Fed, and Treasury handled the fiasco. How the "three marketers": Alan Greenspan, Robert Rubin, and Larry Summers struggled to convince the Congress and the American public to disburse a $25 billion rescue package to Mexico. Thrilling and dramatical! The book tells the story of how many leading figures in the American politics (D'Amato, Gingrich, Bush, etc) responded to Rubin's proposal. The chapter also pictured how cool Bill Clinton reacted and how he was willing to risk his career by endorsing the most "unpopular, risky decision" offered by Greenspan-Rubin-Summers trio to deal with the "first crisis in the new millenium". I can see why Krugman who hates so many people loves Rubin. Great book -- so far.

Mining law vs decentralization

Just got back from Denver, CO, preceded by a short reroute to Washington D.C. Met with collegueas: Mbak Ani (IMF), Mbak Lala (LPEM), Mas Iben (Embassy), Mas Yossi (WB), Sjamsu (Georgetown Univ.). Started working on a project about Indonesian mining industry, a collaboration between the Univ. of Indonesia and Colorado School of Mines. A little worried with too many political interests involved: mining associations, Department of Energy and Mines, Department of Forestry, and the Ministry of Environment. The main objective of the project is to draft a new mining law for Indonesia. We have produced a world-class investment law in 1967. Many countries copied it. We had a two-tier contract law that were adopted by Ghana and other countries. But things have changed rapidly. Other countries have reformed their law and regulations. We haven't. Now that everybody in Indonesia talks about decentralization, there is an urgent need to adjust the law. Main problem is that there is a huge hole between the central government and the local, independent bodies ("bupati"). How do we deal with mining contracts subject to this decentralization euphoria? This is a big issue. And politically sensitive. An international, independent institution would be ideal for doing the assessment. But the IMF and the World Bank have bad reputations back home. That leaves the universities and independent research centers. And that's how the LPEM was involved.

Figures lie, liars figure

That's a quote from an article in the Economist. The article cites a recent work by McCloskey and Ziliak on how economists often use statistics blindly, or worse, misuse them. (Not really related, but this reminds me of John's advice to me about the danger of focusing too much on significance and too less on magnitude -- I remember it, because he cited McCloskey, as well). Most interesting from the article is, McCloskey and Ziliak criticize Becker: "... that addiction is rational, mainly on the basis that people's response to changes in price is statistically significant. This is interesting, but does not really explain much...". Hm, a divison inside the "Sweetwater Camp"?

Thanks to Y. Chang for the link.

Thanks, Bob Edwards!

Sad news this morning. "...Morning radio will soon lose one of its most familiar news anchors. Bob Edwards, who for nearly 25 years has greeted millions of weekday listeners with the distinctive and richly toned opener "This is `Morning Edition' from NPR News," is being replaced as host of that flagship morning program...." I have gotten used to Bob's "Morning Edition" every day. It feels something is missing not to listen to his program at least once in two days. Well, I hope at least the NPR replaces him with another good host, Steve Inskeep.

Treat them like what Eliott Ness did to Al Capone

In a two-day series of op/ed in the Jakarta Post (here is the first one and here the second), Ross McLeod an Indonesianist at ANU talks about the collapse of IBRA. He concluded that Indonesia has lost $60 billion along the way. Citing Frecaut's paper in BIES, he suggests to get the money back from those criminal conglomerates through taxation mechanism. The way the U.S. IRS got Al Capone back then. Makes sense. For recent assessment on the general economy, read the special issue of BIES.

Pram wants to die in smoke. Let him do.

An article in Reuters on Indonesian kretek. Pram is used as an illustration. Why Pram? Had the article writer changed Pram's name, no one would really care. As for Pram, my favourite author, he chooses to smoke. And to die smoking. Which is fine. Still, I don't find any plausible reason why the article should use Pram to tell stories about Indonesian kretek.

Working Moms Good for Daughters?

Tyler Cowen argues that "...If a mother works, her daughters are more likely to earn an income commensurate with their familial status. Working moms should feel less guilty..." Well, that's only money, Tyler. Are those daughters happy? Are those daughters not lonely? I don't find the argument compelling. My take: working moms should feel less guilty (if they raised daughters who turn out to earn high income and be succesful and be happy and...), and so should non-working moms (if they raised daughters who turn out to earn high income and be succesful and be happy and...)

Which one is smarter: Buy One Get One Free or Half Price?

I agree with Alex Tabarrok's answer.

Money vs Value

Poor Glenn. He confuses money and value: "...People's willingness to make donations, sometimes sizable, in support of things they can get for free is something that has surprised me about blogging, and suggests that the portrayal of human behavior I got in Econ 101 was incomplete..."

Patrioct Act at U of I

"...While some Illinois universities believe the USA Patriot Act has caused a decline in international student enrollment, there has been no evidence of such an effect at this University...", reported the Daily Illini today. In the print edition, the paper has a chart taken from Univ. of Illinois Office of International Student Affairs. It doesn't need much time to figure out that this news is at best misleading, if not lying. The chart says at Fall '99 the number of international students was 3,454; Fall '00 3,798; Fall '01 4,287; Fall '02 4,555; and Fall '03 4,769. That's it. No single word about the actual growth. In fact, from Fall '99 to Fall '00 the rate was 10%. The next year the rate grew to 13%. Then came the Patriot Act. Unsurprisingly, the rate at Fall '02 was down to 6.25% and even worse at Fall '03: 4.6%.

Corner to be Missed

My officemate Basanta took a picture of my desk. Will miss this desk and all the Mumford-ians so much...

[Mumford picture courtesy of University of Illinois Office of Planning and Programs]

Dismal Research

You usually read a disclaimer like "... if the true model is... bla, bla, bla...". This implies that all estimating models are wrong. You report the least wrong one. As simple as that. As dismal as it can be.

Musgrave

Dave Warsh wrote about Richard Musgrave. First heard about this person from the theory of taxation class. Wasn't really aware how big influence he had been to the field of public economics. Of particular interest from Dave's piece, is how Musgrave and Samuelson made friends:

"... [Musgrave] and Samuelson had been close friends for 20 years, ever since they had been graduate students together. Musgrave frequently expressed pleasure in later years at having led Samuelson to the problem that he so successfully solved. Samuelson in turn occasionally mused that perhaps he had cost Musgrave — or Abram Bergson or John Rawls or some combination – a Nobel Prize..."

Utility Function Explained

My skeptical friend from engineering asked, what made a utility function. How would I explain completeness, reflexivity, transitivity, countinuity, monotonicity and local non-satiation? In that order, I mumbled:

I’m looking at three fruits on the table: mango, durian, and papaya. 1) I like mango more than durian; and I like durian more than papaya. 2) I like mango more than papaya. 3) If mother adds a fourth fruit, a banana onto the table, and I happen to like it almost as much as I like mango, then I like banana more than durian or papaya. 4) I like two mangoes plus two durians more than one mango and one papaya only. 5) I still like two mangoes and one durian compared to one mango and one papaya. 6) I always like it if mother gives an extra slice of mango, no matter how small it is.