You stated that someone spending money on bingo, lottery, cigarettes or vodka must be assumed to derive at least some momentary utility from those transactions

Yes. If it didn’t at least provide some momentary utility, it is unclear what the motivation for it would be.

and whether that utility outweighs the eventual cost over their lifetime is is irrelevant when it comes to the issue of it being rational or not.

I’m not sure I said that, and if I appear to have done, it’s not what I meant. That would certainly be in contradiction with what I believe to be the case.

There are several problems with determining irrationality (based on this definition) in practice:

  1. It is hard (if not impossible) to establish objectively and quantitatively, and without the benefit of hindsight, the cost and the utility involved.
  2. It is hard to establish the boundaries of ‘bounded rationality’. It is not sufficient to regret a past decision for the decision to have been irrational in the first place. Regret can be reduced to cost > utility, but for it truly to have been an irrational decision, the decision-maker must have been able to reason that the cost would eventually outweigh the utility.
  3. Regret can also arise when it turns out you either overestimated the utility or you underestimated the cost when making the decision in the past. People change their mind over time, and so it is quite possible that the pleasure of spending money on lottery tickets, large as it my feel every time you watch the draw, feels insignificant when you’re 78 years old and destitute.

At the same time, you agree that, in order for something to be rational, the net cost must be less than the net benefit.

This is what I say, yes.

‘it’s always possible to have a bit more ‘utility’’

No

Your comparison with ‘efficiency’ does not work. Something can be 100% efficient, but it is not possible to have 100% utility. Even if you were Mr Creosote, there are other ways if increasing your utility than stuffing a final wafer-thin mint in your mouth — someone telling a good joke, a nice massage… or indeed accepting the mint and keeping it for later.

For clarity’s sake: I didn’t mean that more of something (defined very narrowly) always implies more utility. What I meant is that from whatever state you are in, it is always possible to take an action that increases utility. In other words, absolute bliss does not exist.

The drunker I become, the less rational I become — it is a continuum.

I’m staying away from attributing the property of rationality to a person. I limit myself to trying to establish whether a choice or a decision is rational or not. And that is a boolean concept IMV.

‘I think it’s fine to treat this as negative utility.’

No

I really don’t see the problem. It’s no more problematic than speaking of a negative amount of money.

We certainly can measure the utility of buying insurance of donating to charity — we simply have to measure the outcomes of both and see whether, or not, doing so was costlier than an alternative policy or whether the net improvement in the recipients’ lives were greater than the cost of administering it. In the case of the lottery, it’s slightly more difficult because one may never win but still enjoy playing.

I didn’t say we cannot measure the utility. I said that we cannot say unconditionally that the utility would be negative (I now know you have a problem with that concept, but YKWIM — read it as an “overall utility-reducing choice”. When you measure the outcome, you will find that for some people it provides net positive utility, and for others it doesn’t. That applies to insurance and lottery as much as it does for smoking or drinking.

‘The only person who can weigh up that utility against the disutility of the cost and of the implications for my health and longevity is me.’

Your loved ones and/or dependents may beg to differ.

I’m not sure whether you are deliberately misunderstanding me here. What I meant was that it is not possible in general, for an unspecified person, for you or me to determine the utility and disutility of a certain choice.

As for the loved ones and dependents, that too is my affair. It is up to me to decide to what extent I take the implications of my choices on them to heart or not (in respect of the rationality of my choices). You or I may find it morally reprehensible that someone’s unhealthy lifestyle means their dependents are deprived, or that their workaholism means they’re not attending their children’s school plays, or that their gambling habit means there is nothing to inherit when they come to die, but none of this makes the individual’s choices necessarily irrational.

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Accidental behavioural economist in search of wisdom. Uses insights from (behavioural) economics in organization development. On Twitter as @koenfucius

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