Jevons paradox: as employment of a resource becomes more efficient (an increase in effect from a given amount of the resource), economics expects the demand for that resource to decrease (as though keeping the effect of use constant), but instead demand increases.
I have proposed that this is a collective effect of individuals finding additional ways to use the given resource. This is intended as an indication that we need further research into perceptions of alternative environmental feedback paths as we create, modify, and carry out plans.
Giffen paradox: As the cost of cheap foods rises poor people buy more cheap foods, violating an expectation in economics that an increase in cost results in a decrease in demand.
People eat foods of different cost and quality. Call them steak and bread.
Poor people can afford only limited amounts of steak in their budget.
When the price bread goes up, they can’t afford steak at all, and they eat more bread, even though it costs more.
Control of budget and caloric requirements has higher gain than does control of the preference for meat. Individuals control hunger/satiation in the relatively short term (more than once a day, usually), and for this, bread suffices if they can get enough. (They usually control health effects, but over a longer term, and without education or careful observation not obviously related to the steak/bread choice.)
No direct analogy is evident. Whether the ‘resource’ is money in the budget. or caloric intake (as a quantitative surrogate for hunger/satiation), or subjective preference for one or another good, or e.g. health benefit of one or another good, there is no change in its efficiency.
Bill Williams wrote this up in Chapter 25 of Hershberger (1989) Volitional Action: Conation and control. (I can’t locate a digital copy.) In March of 2004, Bill W. cautioned relying completely on his 1990 article in American Behavioral Scientist 34.1, a special issue devoted to Control Theory, because he disagreed with changes that the editor had made without consultation with the author.
Bill W. reviewed constraints and conditions which economists have devised to hem the Giffen effect in so narrow a definition as to justify excluding it from consideration. Some of these are included or implicit in the ‘necessary preconditions’ listed the Wikipedia article on the Giffen effect, as follows.
There are three necessary preconditions for this situation to arise:
the good in question must be an inferior good,
there must be a lack of close substitute goods
the goods must constitute a substantial percentage of the buyer’s income, but not such a substantial percentage of the buyer’s income that none of the associated normal goods are consumed.
If precondition #1 is changed to “The goods in question must be so inferior that the income effect is greater than the substitution effect” then this list defines necessary and sufficient conditions. The last condition is a condition on the buyer rather than the goods itself, and thus the phenomenon is also called a “Giffen behavior”.
In the 1989 book chapter, Bill W. says
the Giffen effect is the result of a relationship between a particular structure of preferences and a budget level. The preferences need not be concerned with physiological necessities, nor need the budget be either absolutely or relatively low.
In the CSGnet post cited above and here, Bill W. inveighed against the presumption that maximization is a fundamental principle in economics. It seems to me that optimization rather than maximization is the norm in nature and in PCT.
The principle of maximization assumes that preferences always take the form such that applying the principle of maximization will identify an optimum pattern of behavior-- and when applied in economics it doesn’t work. The maximization principle has been known not to work since Alfred Marshall introduced this problem into the mainstream of discussion in his Principles text in 1895.
He was responding specifically to a proposal that game theory provides a unifying framework for all behavioral sciences, defining a hierarchy within the lower levels of which PCT might find a place, citing (with some ‘erosion’ of the quotation) a paper that Herb Gintis republished in several later revisions:
The rational actor model assumes that agents have preferences reflecting their wants and the tradeoffs among these wants, and that agents maximize their utility by choosing from an action set that is limited by available information, material resources and time, cognitive capacity, and the agent’s physical capacities.
Herbert Gintis (2003) Towards a Unity of the Human Behavioral Sciences
Bill Williams provided background on the process of rediscovering this solution to the paradox, and its prior publication.
When I was a graduate student as a thesis I attempted to develop an alternative to the principle of maximization. I used the Giffen paradox as an anomalous case from which to make this attempt. But, I didn’t get anywhere, so I bluffed my way into a Ph.D. As some people will tell you I am good at bluffing. Thirteen years later, and still trying to find a method that would explain the Giffen behavior I encountered Bill Powers. He was interested in economics, but didn’t see a way to apply control theory to economic questions. Together we solved the paradox over a long weekend.
The difficulty that I had, knowing the economic side of the issue, and the difficulty Powers had knowing modeling, was that to solve the problem you needed to know more than any one single person at the time knew.
Knowing modeling alone wasn’t enough, and neither was knowing the economics. However, one the problem was solved by combining what we knew, I did a literature search and I found that the problem had been solved. See item 4 in the bibliography below. But, Beckman for some reason didn’t go on to apply control theory to enough other problems in economics to demonstrate its applicability. If you happen to read the paper which I wrote and Marken edited for “American Behavioral Scientist” be warned that some parts are all fucked up. Marken thought, as usual, that he was smarter, knew more, and etc etc, and he attempted to improve the paper I’d written with consulting me.
- Beckman, M. J. 1953. “Comparative Statics in Linear Programing and the Giffen Paradox.” Review of Economic Studies vol. 22-23. # 61.