Accounting for Tastes. - book reviews

Business Economics, Oct, 1997 by Edward J. Smith

De gustibus non est disputandum? Is it true that about matters of taste, one ought not argue? Gary S. Becker, University Professor of Economics and Sociology at the University of Chicago and the 1992 recipient of the Nobel price in Economics, disagrees. In his most recent book, a collection of essays entitled Accounting for Tastes, Becker posits a compelling theory that tastes have a profound influence on a variety of individual and collective economic decisions. The twelve essays in the book cover a broad panoply of activities, from choosing not to smoke, drink alcohol or use other drugs, to how and why families interact, to whom and why an individual may choose to marry. The essays are lucid, and while not all are fully developed models, each one is thought provoking.

The majority of the essays are by Becker, including his Nobel lecture. In addition one essay, De gustibus non est disputandum? is coauthored with the late George J. Stigler; one is jointly authored by Becker and Kevin M. Murphy and a third by Becker, Murphy and Michael Grossman. Although the essays are logically arranged, they need not be read in sequential order. The typical reader not extensively familiar with Becker's work would be rewarded by beginning with his Nobel lecture, which describes his intellectual journey and is an excellent road map for the entire book.

Becker's thesis is that basic consumption needs, such as food and shelter, have relatively minor importance in the developed world. Most consumption is unrelated to these basic needs and is profoundly influenced by factors not normally considered in economic models. These factors include environmental influences, upbringing, social interactions (especially with members of a self-defined peer group) and cultural influences. Preferences in traditional models are assumed to be independent of past and future consumption and of others' behavior. Becker thinks otherwise.

Becker extends the human capital model by including two additional types of capital. Personal capital is defined as incorporating relevant past consumption and other personal experiences that affect current and future utilities. Social capital is defined as incorporating the influence of past actions by peers and others in an individual's social network and control system. Becker assumes that "...forward looking persons recognize that their present choices and experiences affect personal capital in the future, and that future capital directly affects future utilities."

Becker's discussion of social capital builds on some of the earliest economic theory. He reminds us that the concept of social capital was an integral part of early theories of consumption by Bentham and Smith. Consumption is not a solitary activity, but one that has major social components. "Men and women want respect, recognition, prestige, acceptance and power from their family, friends, peers, and others....people often choose restaurants, neighborhoods, schools, books to read, political opinions, food, or leisure activities with an eye to pleasing peers and others in their social network."

One of the most interesting essays develops a theoretical argument of why one restaurant is extremely busy but a nearly identical restaurant in close proximity is empty and why the former doesn't raise price to maximize profits. His explanation is that the demand for some goods (restaurant meals, in this example, but also tickets to theaters, sporting events, or even books and recorded music) depends on the demand by other consumers and that the pleasure of consumption is increased when many people want to consume the good. For other individuals and for other classes of goods, competing for and consuming goods that are not available to many increases utility. Utility in these cases is derived from the exclusivity of consumption.

For the practicing economist, there are always more intriguing essays and books to read and contemplate than there are hours in the day. Reading Becker's Accounting for Tastes is rewarding for any economist not just for the originality of his approach to many perplexing problems. Rather, the great value is in the applicability of Becker's ideas in the structuring of problems for analysis. The role of past consumption in forming habits extends beyond addictive goods; businesses have long realized that the first sale is the most difficult and also that a small group of customers usually make the majority of purchases. Becker provides an economic framework for understanding these behaviors, not only in terms of simple habits, but also in the more powerful framework of society generally. Accounting for Tastes isn't a cookbook filled with specific instructions, but it is an excellent compilation of useful ideas. Time spent with Becker's essays is a feast for the imagination.

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