Malleable preferences

July 21st, 2009 by ftobia

I think a lot about peoples’ preferences and how individuals make decisions to achieve their desired ends. Microeconomic theory touches on these sorts of questions, which I think is why I’m drawn to it. But while micro theory does some good explaining, it doesn’t go the whole way. I don’t just want a descriptive framework that maybe works good enough in most cases. I want some heuristic models that I can apply to my everyday life.

So I’m going to bastardize microeconomics and use it as I see fit. Here goes:

A rational decision maker will be better off the more malleable his preferences are. Imagine a continuum of control over one’s preferences. At one end, individuals are endowed with perfectly stable, static preferences at birth. At the other end, individuals can change their preferences however they see fit, so that only if they starve to death will their utility be less than infinite.

Now, I’m pretty sure standard utility theory presupposes stable preferences. With malleable preferences, you’re essentially optimizing two things at the same time: the mix of goods and services you purchase, and how you feel about the goods and services you purchase. That would probably lead to some pretty ridiculous maths assuming a tractable solution exists.

Behavioral economics has shown us that, no, preferences are not always pre-formed and stable. For a very cool paper on this point, try reading “Tom Sawyer and the construction of value” by Ariely, Lowenstein, and Prelec. I mean, sometimes our preferences are well-defined, like if I know I dislike strawberries. But to me the interesting case is when we are in a new situation and don’t have our preferences defined. For example: Do I like guava? I’m not sure. Allow me to assume that I do. Some other behavioral economics studies have shown that you can actually frame experiences so that you are more inclined to like (or dislike) them.

Obviously if your preferences are malleable enough, you will be happy with pretty much anything you consume. On first face this may seem like a trivial point. But I think the question “What shall I choose to consume to maximize my happiness?” is one step too far. The question instead should be “How shall I best maximize my happiness?”. Utility theory should help answer that question, I think, in as rigorous a manner as possible.

I wonder if I can formalize this idea using a neoclassical utility framework.

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This work is licensed under a Creative Commons Attribution 3.0 Unported.