Scholars' Blog

The Optimisation Mindset

Which do you prefer: apples or oranges? Suppose you had two pounds to spend on oranges and apples, each priced at 40p. What would you do, assuming the money cannot be saved for later?

Microeconomics studies, among other things, this sort of question that concerns consumer behaviour. It models consumption as an optimisation problem. Much of economics is related to optimisation, for it is essentially the study of the problem of scarcity: humans have limited resources, but unlimited needs and wants, which means we have to make choices.

In the case of consumption, the optimisation problem is understood as a ‘rational’ person maximising ‘utility’ given their ‘preferences’ and ‘budget constraints’. In plain language: if you prefer oranges to apples, the utility you get from having an apple is higher than that from having an orange. You are assumed to act in your own interests and nothing else, so you will buy the combination of apples and oranges you like the most (the combination that gives you the most utility); and this is given your preferences (e.g. whether you prefer apples or oranges) and the limited amount of money you can spend (e.g. two pounds).

The sort of optimisation problem that occurs in problem sheets often begins with preferences and constraints and asks for the ‘optimal’ choice; that is, how best you can spend your money. Consider the following ‘utility functions’: if your utility is given by the number of apples bought multiplied by five plus the number of oranges bought multiplied by four, that is maximised by buying five apples. If instead it is given by the number of apples bought multiplied by the number of oranges bought, that is maximised by buying three of one fruit and two of the other fruit. Given certain parameters, there is some action or actions you can take that best serves your interests.

But the reasoning also goes the other way. The assumption of rationality implies that your actions cannot contradict your preferences; in fact, your preferences can be inferred from your actions. If you spent your two pounds on five oranges, it cannot be the case that you prefer apples to oranges, because otherwise you would have spent at least some of your money on apples. Given any combination of apples and oranges you buy, it is possible to reverse engineer a utility function for which you are de facto maximising.

The significance of the consumer’s optimisation problem is that it can be generalised. Whether to buy apples or oranges is a choice; while life is a collection of choices. We choose when we wake up, what we have for breakfast, lunch, and dinner, how much we exercise, which friends we make, whether we save or spend, and so on, every single day. Sometimes these choices are made for us, without our control; sometimes these choices are made by habit or custom, so we pay little attention to them. But nonetheless they are choices, made under our preferences and our constraints: we only have so much time, money, and attention to spend, and there are countless things we can spend these on. And insofar as we are making choices, we are optimising for something, even though we might not notice or acknowledge that fact.

A habitual smoker implicitly prefers present enjoyment to future health. A consistent absentee at lectures implicitly prefers sleep to knowledge or academic achievement. A workaholic implicitly prefers work to family and friends. Suppose we confront them and claim these are their preferences; they might disagree and say that they didn’t have a choice, or that their preferences were the opposite of what we had suggested. Yet, it remains no less an objective fact that their actions are best aligned with the preferences we deduce and not the preferences they claim to hold. They might challenge the assumption of rationality on which the argument depends, saying that life is so much more complex than the grossly simplified world only found on problem sheets. According to the critic, it is in the first place difficult to know what our preferences are, since we are choosing between not just apples and oranges, but also countless other things. Similarly, it is difficult to know what the optimal choice is, let alone implementing it. Moreover, perhaps we should care about satisfaction instead of optimisation; wouldn’t it be too demanding if our optimal life choices were like those of Olympic athletes or members of the military?

These are reasonable criticisms, but they do not subtract from the importance of the optimisation mindset. The optimisation mindset makes clear that we need self-awareness: awareness of what we think our preferences are, and what choices we are making every day. We need self-awareness because we are more than selfish calculators of economic interest; our preferences are fundamentally the values we espouse. Since values are the basis for our identities and our actions, we cannot afford not to have any, or not to know what they are.

Just as we cannot be without values, we cannot live without values. It makes no sense to declare that you prefer apples to oranges, then proceed to buy five oranges instead of five apples. If we don’t at least make some effort to live by our values, we might as well not have held them at all. This is why self-awareness is important. Without it, we cannot acknowledge, question, justify, or change our choices or our preferences, which is particularly important if they are not consistent.

There are people who prefer achievement to integrity, pleasure to fidelity, and fame to modesty, even if they might publicly proclaim and sometimes act otherwise. One might think that they have fooled others who have believed in their stated, rather than implicit, preferences, and perhaps even have benefited from their pretence. Yet, even if we can gain from fooling others and maintaining double standards (assuming those gains are what we actually want), we decidedly have nothing to gain from fooling ourselves.

As Socrates said, “The unexamined life is not worth living.” So, here is a little prompt for introspection: what are you optimising for?

 

About the author
Martin Yip, 2018 Kwok Scholar, is pursuing the Philosophy, Politics and Economics degree at the University of Oxford. This article was published on 21 February 2021 by the Poor Print, the Oriel College Student Newspaper of the University of Oxford.