Weighted Utilitarianism, Edgeworth, and the Market

Abstract: It is customary to dismiss utilitarianism as meaningless because utilities are only ordinal and there is no way to make interpersonal comparisons of utility. This view is based on the assumption that indifference is a transitive relation. In reality, human perception has limited accuracy and just noticeable differences (jnd’s) single out utility functions that are almost unique. Further, they can be used to make interpersonal comparisons of utility, as first suggested by Edgeworth. Our main result shows that a very weak monotonicity condition on society’s preferences necessitates weighted utilitarianism, where the weights are the inverse of the individual jnd’s. Moreover, we suggest that the language of weighted utilitarianism can enrich the debate over free markets and their normative appeal. Competitive markets can be viewed as computing an allocation that maximizes a weighted utilitarian function, with weights reflecting a “one dollar one vote” principle, as opposed to the “one person one vote” principle reflected by the Edgeworth weights.