Wednesday, June 13, 2012

studying particular preferences

It occurred to me today that it's really sort of strange that we study preferences so much in psychological economics. This is a very foreign thing compared to classical economics, in which it's assumed that people have well-defined preferences and act on them in a basically optimal manner, but what those preferences are is immaterial. Applied studies of course have to make some assumptions about preferences, but those are usually of a very obvious sort such as "more money is better".

Even if you exclusively look at pure theory, classical theory abstracts from those particulars entirely, whereas in psychological economic theory, much effort has been put towards understanding what preferences people have (over risk, over others' outcomes, over beliefs, etc.) and breaking them down into as many pieces are necessary to explain every choice.

Why? I see three possibilities:

  1. The alternative would be to expand the domain and type of preferences that are allowed more generally, and derive general implications. Is it that doing so opens up the doors so wide that anything is possible and nothing interesting is provable?
  2. Or are the necessary generalizations of forms of preferences just too unwieldy to work with mathematically, or not sensibly representable at all, except in particular cases?
  3. Or, are we just more concerned with accurately predicting real world behavior as a profession now, and these psychological preferences are the only ones unobvious enough to warrant particular study?

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