Freedom, Markets, and Well-being Fall 2019

The Capabilities Approach

Overview

The capabilities approach represents an alternative to the standard treatment of well-being in economics. Economists use indifference curves to measure well-being. Professor Brown showed us how to construct those curves based on observed choices; the result is what is called a utility function. The theory is that people are made better or worse off by moving to higher or lower indifference curves.

There are four limits to utility theory.

First, utility theory does not allow us to compare well-being of different people. Utility functions are subjective: we could each have a different one. They also do not allow us to compare one person’s well-being against another’s. You may be on a very high indifference curve while I am on a very low one but that does not necessarily mean that you are better off than I am. All we can say is that you are better off than you would have been if you were on one of your lower indifference curves and that I am worse off than I would have been if I were on one of my higher indifference curves.

Second, utility theory does not distinguish wants from needs. Ordinarily, we distinguish between things that people need, like food and shelter, and things that people merely want, like consumer electronics and expensive coffee. This distinction is obviously important for many normative purposes, but it plays no role in utility theory.

Third, utility theory is insensitive to the genesis of people’s wants. Utility theory says you’re better off if you get what you want even if your desires are the product of manipulation or false beliefs. This raises the problem of what are called adaptive preferences. What that means is that people tend to adapt to their circumstances or what they believe is possible. So if you grow up thinking that girls just don’t go to school, you won’t want to go to school. Utility theory counts this as something that girls want without taking into account the reason why they want it. Since that reason is, on its face, defective, that’s a limit of utility theory.

Fourth, utility theory has often been applied to households rather than individuals. (It seems to me that this is not a fault of utility theory but rather of the ham-handed way it is applied. For instance, if you can’t combine different individual’s utilities, I don’t see how you could talk about the utility of a household. - mjg)

Why is utility theory like this? My guess is that while it was developed to predict behavior it is often used for normative purposes. For instance, we assume that it is better to move a person to a higher indifference curve, other things being equal. But the theory was not developed with normative purposes in mind. If it had been, the barrier against interpersonal comparisons of utility would have been disqualifying.

The capabilities approach, by contrast, is objective, allows for interpersonal comparisons, and was developed for normative purposes. The theory has two elements: capabilities and functionings. Functionings are “beings and doings,” that is, things that people do, such as “eating regularly,” or qualities that they have, such as “being well-fed.” Capabilities are what economists call “opportunity sets.” Your capabilities are measured by the functionings that are available to you; they are the set of functionings that you have the opportunity of achieving, if you will.

Two supposed advantages

One thing said in favor of the capabilities approach is that it reflects the incommensurability of different values. According to utility theory, your well-being is determined by which indifference curve you are on; it doesn’t matter how you get there. Advocates of the capabilities approach think it does matter: there’s a difference between choosing to fast and involuntarily starving even though the fasting and starving people have similar utility.

The capabilities approach is also supposed to do a better job with adaptive preferences than utility theory does. The problem of adaptive preferences is that people might have preferences that reflect misinformation or malign influences. So they may get what they choose, but their choices don’t reflect their real interests. Here’s an example Nussbaum gives, drawn from Sen (1984, 309).

For example, in 1944, the year after the Great Bengal Famine, the All-India Institute of Hygiene and Public Health did a survey in an area near Calcutta, including in the survey many widows and widowers. Among the widowers, 45.6 percent ranked their health as either ‘ill’ or ‘indifferent.’ Only 2.5% of widows made that judgement, and none at all ranked their health as ‘indifferent’ …. This was in striking contrast to their real situation, since widows tend to be a particularly deprived group in basic health and nutrition. (Nussbaum 2001, 79–80)

If you think that the capability of being healthy is an important one for well-being, the fact that the widows think they are fine doesn’t settle the question. They have to actually be fine and that is something they can be mistaken about.

I raised an objection here. I said that being healthy and fed are functionings, not capabilities. Capabilities are available functionings. Nussbaum wishes to avoid being paternalistic and so insists only that people have the important functionings available to them if they choose to pursue them. But if your preferences have been warped by your upbringing, your choices will be warped as well. So you might have the capability of eating well but still not achieve the functioning of eating well because you choose not to eat what you need. If so, the problem of adaptive preferences hasn’t really been solved.

Our discussion

We talked a little bit about whether Nussbaum’s list is culturally specific or whether it is truly universal. I think that the way Nussbaum sees this is that it’s not an interesting question. Suppose one item on her list is more valued in western societies than it is in others. That doesn’t make it wrong. If you disagree with her list, say why. As she sees it, you can do so from any cultural perspective. The cultural origins of the items on the list is less important than the substantive case for their being on the list, in her opinion, as I understand it.

Alexa referred to literature in behavioral economics about the phenomenon of having too many choices. When this is so, having more choices makes you worse off than you would have been with fewer choices. For instance, you might waste time trying to make choices among options that are not really all that different from one another. Or you might worry that you made the wrong choice.

Alexa also asked what the alternative to choice might be. Why would anyone think that being able to make choices about their life isn’t an essential aspect of living a good life? I said that an alternative model of a good life is fulfilling a role or fitting in to a plan. For instance, many people think that being a good parent to their children, and a good child to their parents, is more important than doing what they want to. Others have thought that the meaning of life has to be tied to playing a role in a divine plan.

Finally, Alexa noted that Nussbaum’s list, and the capabilities approach in general, are not great at giving us guidance in making trade-offs. If we have to sacrifice some items on the list for others, how should we think about that? I think she’s right here.

References

Nussbaum, Martha C. 2001. “Adaptive Preferences and Women’s Options.” Economics and Philosophy 17 (1): 67–88.

———. 2011. Creating Capabilities: The Human Development Approach. Cambridge: Harvard University Press.

Sen, Amartya. 1984. “Rights and Capabilities.” In Resources, Values, and Development, 307–24. Cambridge, MA: Harvard University Press.

———. 1993. “Capability and Well-Being.” In The Quality of Life, edited by Martha Nussbaum and Amartya Sen, 31–66. Oxford: Clarendon Press.