Welfare vs. Utility

Economists routinely measure individual welfare by (von-Neumann-Morgenstern) utility, for instance when analysing welfare intensity, social welfare, or welfare inequality. Is this welfare measure justified? Natural working hypotheses turn out to imply a different measure. It overcomes familiar problems of utility, by faithfully capturing non-ordinal welfare features, such as welfare intensity -- despite still resting on purely ordinal evidence, such as revealed preferences or self-reported welfare comparisons. Social welfare analysis changes when based on this new individual welfare measure rather than utility. For instance, Harsanyi's `utilitarian theorem' now supports prioritarianism. We compare the standard utility-based versions of utilitarianism and prioritarianism with new versions based on our welfare measure. We show that utility is a hybrid object, determined by two rival influences: welfare, and the attitude to intrinsic risk, i.e., to risk in welfare. A new version of Harsanyi's theorem shows that Harsanyi implicitly makes the questionable assumption that society is neutral to intrinsic risk, even when all individuals are averse to intrinsic risk.