Conventions, Operations, Predictions

Chapter 12 analyzes the third phase of the debate on expected utility theory, from the end of 1952 to 1955. The issues concerning the nature of utility measurement gained an autonomous status in this phase. Milton Friedman, Leonard J. Savage, Robert Strotz, Armen Alchian, and Daniel Ellsberg argued that measuring utility consists of assigning numbers to objects by following a definite set of operations. While the particular way of assigning utility numbers to objects is largely arbitrary and conventional, the assigned numbers should allow economists to predict individuals’ choice behavior. This is similar to the operational conception advanced by psychologist Stanley Smith Stevens and definitively liberates utility measurement from its remaining ties with units and ratios. The novel view of measurement quickly became standard among mainstream utility theorists, and its success helps explain the peaceful cohabitation of cardinal and ordinal utility within utility analysis that began in the mid-1950s.

Ordinal Utility

Chapter 5 deals with the ordinal revolution in utility analysis inaugurated by Vilfredo Pareto around 1900. The fundamental notion of Pareto’s analysis was that of preference, and he conceived of utility as a numerical index expressing the preference relations between commodities. While Pareto’s ordinal approach was highly innovative, his understanding of measurement remained the unit-based one. The second part of chapter 5 reconstructs an important debate on the measurability of utility that took place in Austria from 1907 to 1912. Franz Čuhel and Ludwig von Mises rejected Eugen von Böhm-Bawerk’s idea that it is possible to identify a unit to measure utility, and, independently of Pareto, they advocated an ordinal approach to utility. Especially through Mises’s influence, the ordinal approach to utility rose to prominence among Austrian economists after World War I. The final part of chapter 5 discusses the differences between the Austrian and Paretian approaches to ordinal utility.

Rational Choice with Intransitive Preferences

Traditional rational choice theory assumes that the weak preference relation of an agent is an ordering that is it satisfies reflexivity, completeness and transitivity. It is also well known that the ordering property is essential to build the traditional ordinal utility analysis of consumer behaviour. However, there can be many situations when the weak preference relation of an agent may violate transitivity property, and hence, is not an ordering. In such situations traditional ordinal utility analysis breaks down. This paper develops a framework and discusses all the important results of rational choice theory when preferences are intransitive. It looks at weaker rationality properties such as quasi-transitivity and acyclicity and based on that it introduces weaker concepts of rationality such as quasi-transitive rationality and acyclic rationality and characterizes them. It also brings in the congruence axioms and property of path independence, and establishes the link with rationality. Finally, it analyzes how the results will change if we bring in restricted domain assumption of the choice function. JEL Classification: D01, D10, D11

Determining Turkish consumers’ consumption satisfaction with Erzurum Civil cheese

Purpose – The purpose of this paper is to determine redesigned product profiles to maximize Erzurum Civil cheese consumption satisfaction of Turkish consumers under an ordinal utility approach. Design/methodology/approach – Data were obtained from a survey conducted in Erzurum in 2014. A conjoint analysis was used to determine the utilities of each level along with the relative importance of Erzurum Civil cheese attributes for measuring the consumption satisfaction as an indicator of the purchase decision and priorities of Turkish consumers. Findings – The results of the study clearly highlighted that Erzurum Civil cheese consumption satisfaction was maximized with the augmented and actual product images redesigned by a private-labelled and local-branded simple product with the highest and medium prices based on organic production techniques for heavy and light consumers, respectively. However, medium consumers appreciated the core benefit obtained from the credence quality attributes supported by the generic branded simple cheese with the lowest price purchased directly from the farmstead villages. Eventually, these marketing tactics and strategies could increase demand, maximizing the cheese consumption and satisfaction of Turkish consumers in each cluster. They could also provide greater consumption satisfaction to Turkish consumers as well as bigger marginal contributions to the market dynamics of the food supply chain. Originality/value – This study was the first research conducted on Erzurum Civil cheese consumption satisfaction of Turkish consumers using innovative approaches and brand designations, such as Protected Designation of Origin, Protected Geographical Indication, and Traditional Specialty Guaranteed in Turkey using the conjoint and k-mean cluster analyses techniques.