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Ludwig Von Mises

As we have seen in previous lessons, acting purposely implies making rational choices between ends. But if we choose one end and reject the others, this means that the selected end is better at removing our "uneasiness"; or at least it means that we consider it to be better. But this "consideration to be better" implies that the others are "less better". In other words, we are comparing one end to another one.

A Scale

But as any mathematician will tell you, every time you are able to compare two or more items and order them, you have a scale. For example if you have several marbles you can order them by size; smaller at the front and larger at the back. In so doing you constructed a scale. You may not be able to provide the exact mathematical equation which determines the position of each marble in the scale, but you can still put them in a meaningful order you can see and understand.

A Value Scale

Similarly, every time a person makes a selection of one end instead of another, this person is comparing one end to another. This person is creating a scale of ends (or goals) ordered by their value to remove "uneasiness". Let's say that Joao smokes. He has the choice between a Bolivar Belicoso (a fine Cuban cigar), a hand-rolled cigarette using pipe tobacco and a Marlboro. As Joao enjoys smoking (and he wants to smoke), he will smoke whatever he finds more desirable (i.e. whatever better removes his urges to smoke and gives him more pleasure) and so he mentally makes a list of desirability:

  1. Bolivar Belilcoso
  2. Marlboro
  3. Hand-rolled cigarette using pipe tobacco

In mathematical terms, desirability can be ordered as:

Bolivar Belicoso > Marlboro > Hand-rolled cigarette using pipe tobacco

The Hypothetical Value Scale

As this scale is something that Joao created and we can't read his mind, we could ask him to describe it. Would this be OK from a Praxeological point of view? No. A description is pretty much useless. This is so because Praxeology is concerned with actions, not hypothetical thoughts. Psychologists may be interested in this scale, but not Praxeology.

This is so not only because Praxeology is defined in terms of Actions and it has no meaning outside those parameters, but because if we take intentions into consideration we cannot link them with logical certainty to effects in the real world. Take for example election polls. Those polls are "intention" polls which may describe accurately (plus or minus an error) what people will do in general terms. But it cannot describe what a specific person will do.

The Real Value Scale

So how does Praxeology then determines which scale is in play? By Joao's actions. As soon as Joao takes a Bolivar Belicoso and begins to smoke it, we will know that these cigars were at the top of his list. We may also observe that his other choices were Marlboro and a hand-rolled cigarette using pipe tobacco but from a Praxeological point of view we will be unable to reconstruct the complete Value Scale unless other actions are involved. For example, if Joao smokes a Marlboro after the Bolivar Belicoso, we will then know that Marlboros were in second place. Observing actions is the only non-arbitrary, empirical and objective way to study human behaviour.

It is possible to argue that in some special circumstances a person may have to choose between two different options but they both provide the exact same relief from "uneasiness". This person chooses one option over another but it is clear that both options have the exact same value. Wouldn't this nullify our scale? No. Because we define the scale. We say that whatever happens to be the option acted upon, -even if the final selection was random- this is the preferred option. Besides, this circumstance is so implausible as to have no real impact in the real world. When we make a decision between two choices, there is always a determining factor no matter how small.

It is also possible to argue that assuming that actions reveal preferences is an oversimplification because people do not make decisions based on perfect information. Maybe peoples' preferences are different than their choices because they don’t have all the information to properly evaluate their Value Scale. But from a Praxeological point of view this does not matter because we define preference as observable through actions. Besides and realistically speaking, when was the last time you had all the information relative to a decision? In real life such a scenario never takes place. As far as we can tell all human decisions are based on imperfect information. There is nothing practical to be gained by assuming otherwise of playing what-if games.

The Quantification Problem

OK. So Praxeologically speaking we have the means to deduce a Value Scale purely from peoples' actions. But how do we quantify such a scale?

In order to answer this question we need to remember that all economic decisions are personal and subjective. To begin with, it is highly unlikely that a person would make a decision based entirely on quantifiable parameters. There are lots of feelings and necessities that are part of our decisions which are difficult (if not impossible) to quantify. For example, how do you quantify happiness?

But let's take a step forward. Let's say that we can somehow quantify all the parameters that go into a given scale. So what? It so happens that those quantifications are subjective and have meaning only to the person making the quantification and only at a given time and only under specific circumstances. In economic terms we would say that, Value is not intrinsic; is not a property of things or actions. Value is extrinsic, this is, external to things or actions. We define what value we give to a certain thing or action. In other words, even if we could somehow quantify the scale, said quantification would be utterly useless for any scientific study.

And so we conclude that a Praxeological Value Scale is purely an "ordinal scale" and not a "cardinal scale". This is, we can see the order but we cannot define the mathematical equation that will produce such an order.

Synchronicity between an Action and a Value Scale

If we now look carefully and study Value Scales belonging to different people, we will notice that the selected end is always the goal located at the top of the scale. In other words, given a number of choices, the selected choice (i.e. the choice that was acted upon) is always the preferred one.

In our previous example, the Bolivar Belicoso cigar is at the top of the scale and this is no coincidence. This perfect coincidence is simply an artifact, something we made up that enables us to study what is going on in a logical manner. It isn't that the goal at the top has some sort of mystical power that make people choose it. It is us that deduce the entire scale based on logic. We do so because the use of logic will enable us to study and interpret (logically) peoples' choices. As such we define that whatever people chose is at the top of the scale.

Note: please see the Glossary if you are unfamiliar with certain words.

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