What are Utility Theory’s shortcomings?
The construction of the mathematical foundations of social science disciplines, including economic theory, requires the application of mathematical operations to non-physical variables, i.e., to variables that describe psychological or subjective properties such as preference. Whether psychological properties can be measured, and hence whether mathematical operations such as addition and multiplication can be applied to psychological variables, was debated by a Committee that was appointed in 1932 by the British Association for the Advancement of Science but the opposing views in this debate were not reconciled in the Committee’s 1940 Final Report. In 1944, game theory was proposed by von Neumann and Morgenstern as the proper instrument with which to develop the mathematical foundations of economic theory where utility theory was to be the means for measuring preference.
