In
psychology
Psychology is the scientific study of mind and behavior. Psychology includes the study of conscious and unconscious phenomena, including feelings and thoughts. It is an academic discipline of immense scope, crossing the boundaries betwe ...
,
economics
Economics () is the social science that studies the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods and services.
Economics focuses on the behaviour and intera ...
and
philosophy
Philosophy (from , ) is the systematized study of general and fundamental questions, such as those about existence, reason, knowledge, values, mind, and language. Such questions are often posed as problems to be studied or resolved. Some ...
, preference is a technical term usually used in relation to choosing between
alternatives
Founded in 1994, Alternatives, Action and Communication Network for International Development, is a non-governmental, international solidarity organization based in Montreal, Quebec, Canada.
Alternatives works to promote justice and equality a ...
. For example, someone prefers A over B if they would rather choose A than B. Preferences are central to
decision theory
Decision theory (or the theory of choice; not to be confused with choice theory) is a branch of applied probability theory concerned with the theory of making decisions based on assigning probabilities to various factors and assigning numerical ...
because of this relation to behavior. Some methods such as
Ordinal Priority Approach use preference relation for decision-making. As connative states, they are closely related to
desires
Desires are states of mind that are expressed by terms like "wanting", " wishing", "longing" or "craving". A great variety of features is commonly associated with desires. They are seen as propositional attitudes towards conceivable states of aff ...
. The difference between the two is that desires are directed at one object while preferences concern a comparison between two alternatives, of which one is preferred to the other.
In
insolvency
In accounting, insolvency is the state of being unable to pay the debts, by a person or company ( debtor), at maturity; those in a state of insolvency are said to be ''insolvent''. There are two forms: cash-flow insolvency and balance-sheet i ...
, the term is used to determine which outstanding obligation the insolvent party has to settle first.
Psychology
In
psychology
Psychology is the scientific study of mind and behavior. Psychology includes the study of conscious and unconscious phenomena, including feelings and thoughts. It is an academic discipline of immense scope, crossing the boundaries betwe ...
, preferences refer to an individual's attitude towards a set of objects, typically reflected in an explicit
decision-making
In psychology, decision-making (also spelled decision making and decisionmaking) is regarded as the Cognition, cognitive process resulting in the selection of a belief or a course of action among several possible alternative options. It could be ...
process (Lichtenstein & Slovic, 2006). The term is also used to mean evaluative judgment in the sense of liking or disliking an object (e.g., Scherer, 2005) which is the most typical definition employed in psychology. However, it does not mean that a preference is necessarily stable over time. Preference can be notably modified by decision-making processes, such as
choices (Brehm, 1956; Sharot, De Martino, & Dolan, 2009), even unconsciously (see Coppin, Delplanque, Cayeux, Porcherot, & Sander, 2010). Consequently, preference can be affected by a person's surroundings and upbringing in terms of geographical location, cultural background, religious beliefs, and education. These factors are found to affect preference as repeated exposure to a certain idea or concept correlates with a positive preference.
Economics
In
economics
Economics () is the social science that studies the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods and services.
Economics focuses on the behaviour and intera ...
and other
social science
Social science is one of the branches of science, devoted to the study of societies and the relationships among individuals within those societies. The term was formerly used to refer to the field of sociology, the original "science of soc ...
s, ''preference'' refers to the set of assumptions related to ordering some alternatives, based on the degree of
happiness
Happiness, in the context of Mental health, mental or emotional states, is positive or Pleasure, pleasant emotions ranging from contentment to intense joy. Other forms include life satisfaction, well-being, subjective well-being, flourishin ...
, satisfaction,
gratification
Gratification is the pleasurable emotional reaction of happiness in response to a fulfillment of a desire or goal. It is also identified as a response stemming from the fulfillment of social needs such as affiliation, socializing, social approva ...
, morality, enjoyment, or
utility
As a topic of economics, utility is used to model worth or value. Its usage has evolved significantly over time. The term was introduced initially as a measure of pleasure or happiness as part of the theory of utilitarianism by moral philosopher ...
they provide. The concept of preferences is used in post-
World War II
World War II or the Second World War, often abbreviated as WWII or WW2, was a world war that lasted from 1939 to 1945. It involved the vast majority of the world's countries—including all of the great powers—forming two opposin ...
neoclassical economics
Neoclassical economics is an approach to economics in which the production, consumption and valuation (pricing) of goods and services are observed as driven by the supply and demand model. According to this line of thought, the value of a good ...
to provide observable evidence in relation to people’s actions. These actions can be described by
Rational Choice Theory
Rational choice theory refers to a set of guidelines that help understand economic and social behaviour. The theory originated in the eighteenth century and can be traced back to political economist and philosopher, Adam Smith. The theory postula ...
, where individuals make decisions based on rational preferences which are aligned with their self-interests in order to achieve an optimal outcome. For a preference to be rational, it must satisfy the axioms of
transitivity and completeness. The first axiom of transitivity refers to consistency between preferences, such that if x is preferred to y and y is preferred to z, then x has to be preferred to z.
The second axiom of completeness describes that a relationship must exist between two options, such that x must be preferred to y or y must be preferred to x.
For example, if I prefer sugar to honey and honey to sweetener then I must prefer sugar to sweetener to satisfy transitivity and I must have a preference between the items to satisfy completeness. Under the axiom of completeness, an individual cannot lack a preference between any two options.
If preferences are both transitive and complete, the relationship between preference can be described by a
utility function
As a topic of economics, utility is used to model worth or value. Its usage has evolved significantly over time. The term was introduced initially as a measure of pleasure or happiness as part of the theory of utilitarianism by moral philosoph ...
. This is because the axioms allow for preferences to be ordered into one equivalent ordering with no preference cycles. Maximising utility does not imply maximise happiness, rather it is an optimisation of the available options based on an individual’s preferences. The so-called
Expected Utility Theory (EUT), which was introduced by
John von Neumann
John von Neumann (; hu, Neumann János Lajos, ; December 28, 1903 – February 8, 1957) was a Hungarian-American mathematician, physicist, computer scientist, engineer and polymath. He was regarded as having perhaps the widest cove ...
and
Oskar Morgenstern
Oskar Morgenstern (January 24, 1902 – July 26, 1977) was an Austrian-American economist. In collaboration with mathematician John von Neumann, he founded the mathematical field of game theory as applied to the social sciences and strategic decis ...
in 1944, explains that so long as an agent's preferences over risky options follow a set of
axiom
An axiom, postulate, or assumption is a statement that is taken to be true, to serve as a premise or starting point for further reasoning and arguments. The word comes from the Ancient Greek word (), meaning 'that which is thought worthy or f ...
s, then he is maximizing the expected value of a utility function.
The mathematical foundations of most common types of preferences — that are representable by quadratic or additive functions — laid down by
Gérard Debreu
enabled
Andranik Tangian
Andranik Semovich Tangian (Melik-Tangyan) (Russian: Андраник Семович Тангян (Мелик-Тангян)); born March 29, 1952) is a Soviet Armenian-German mathematician, political economist and music theorist. Tangian is known ...
to develop methods for their elicitation.
In particular, additive and quadratic preference functions in
variables can be constructed from interviews, where questions are aimed at tracing totally
2D-indifference curves in
coordinate planes without referring to cardinal utility estimates.
Empirical evidence has shown that the usage of rational preferences (and
Rational Choice Theory
Rational choice theory refers to a set of guidelines that help understand economic and social behaviour. The theory originated in the eighteenth century and can be traced back to political economist and philosopher, Adam Smith. The theory postula ...
) does not always accurately predict human behaviour because it makes unrealistic assumptions. In response to this,
neoclassical economists
Neoclassical economics is an approach to economics in which the production, consumption and valuation (pricing) of goods and services are observed as driven by the supply and demand model. According to this line of thought, the value of a good ...
argue that it provides a normative model for people to adjust and optimise their actions.
Behavioural economics
Behavioral economics studies the effects of psychological, cognitive, emotional, cultural and social factors on the decisions of individuals or institutions, such as how those decisions vary from those implied by classical economic theory.
...
describes an alternative approach to predicting human behaviour by using psychological theory which explores deviations from rational preferences and the standard economic model. It also recognises that rational preferences and choices are limited by
heuristics
A heuristic (; ), or heuristic technique, is any approach to problem solving or self-discovery that employs a practical method that is not guaranteed to be optimal, perfect, or rational, but is nevertheless sufficient for reaching an immediate, ...
and
biases
Bias is a disproportionate weight ''in favor of'' or ''against'' an idea or thing, usually in a way that is closed-minded, prejudicial, or unfair. Biases can be innate or learned. People may develop biases for or against an individual, a group, ...
.
Heuristics
A heuristic (; ), or heuristic technique, is any approach to problem solving or self-discovery that employs a practical method that is not guaranteed to be optimal, perfect, or rational, but is nevertheless sufficient for reaching an immediate, ...
are rules of thumb such as elimination by aspects which are used to make decisions rather than maximising the
utility function
As a topic of economics, utility is used to model worth or value. Its usage has evolved significantly over time. The term was introduced initially as a measure of pleasure or happiness as part of the theory of utilitarianism by moral philosoph ...
. Economic
biases
Bias is a disproportionate weight ''in favor of'' or ''against'' an idea or thing, usually in a way that is closed-minded, prejudicial, or unfair. Biases can be innate or learned. People may develop biases for or against an individual, a group, ...
such as reference points and
loss aversion
Loss aversion is the tendency to prefer avoiding losses to acquiring equivalent gains. The principle is prominent in the domain of economics. What distinguishes loss aversion from risk aversion is that the utility of a monetary payoff depends o ...
also violate the assumption of rational preferences by causing individuals to act irrationally.
Relation to desires
''Preferences'' and ''
desires
Desires are states of mind that are expressed by terms like "wanting", " wishing", "longing" or "craving". A great variety of features is commonly associated with desires. They are seen as propositional attitudes towards conceivable states of aff ...
'' are two closely related notions: they are both conative states that determine our behavior.
The difference between the two is that desires are directed at one object while preferences concern a comparison between two alternatives, of which one is preferred to the other.
The focus on preferences instead of desires is very common in the field of
decision theory
Decision theory (or the theory of choice; not to be confused with choice theory) is a branch of applied probability theory concerned with the theory of making decisions based on assigning probabilities to various factors and assigning numerical ...
. It has been argued that desire is the more fundamental notion and that preferences are to be defined in terms of desires.
For this to work, desire has to be understood as involving a degree or intensity. Given this assumption, a preference can be defined as a comparison of two desires.
That Nadia prefers tea over coffee, for example, just means that her desire for tea is stronger than her desire for coffee. One argument for this approach is due to considerations of parsimony: a great number of preferences can be derived from a very small number of desires.
One objection to this theory is that our introspective access is much more immediate in cases of preferences than in cases of desires. So it is usually much easier for us to know which of two options we prefer than to know the degree with which we desire a particular object. This consideration has been used to suggest that maybe preference, and not desire, is the more fundamental notion.
Insolvency
In
Insolvency
In accounting, insolvency is the state of being unable to pay the debts, by a person or company ( debtor), at maturity; those in a state of insolvency are said to be ''insolvent''. There are two forms: cash-flow insolvency and balance-sheet i ...
, the term can be used to describe when a company pays a specific creditor or group of creditors. From doing this, that creditor(s) is made better off, than other creditors. After paying the 'preferred creditor', the company seeks to go into formal insolvency like an administration or liquidation. There must be a desire to make the creditor better off, for them to be a preference. If the preference is proven, legal action can occur. It is a wrongful act of trading. Disqualification is a risk.
Preference arises within the context of the principle maintaining that one of the main objectives in the winding up of an insolvent company is to ensure the equal treatment of creditors.
The rules on preferences allow paying up their creditors as insolvency looms, but that it must prove that the transaction is a result of ordinary commercial considerations.
Also, under the English
Insolvency Act 1986
The Insolvency Act 1986c 45 is an Act of the Parliament of the United Kingdom that provides the legal platform for all matters relating to personal and corporate insolvency in the UK.
History
The Insolvency Act 1986 followed the publication and ...
, if a creditor was proven to have forced the company to pay, the resulting payment would not be considered a preference since it would not constitute unfairness.
It is the decision to give a preference, rather than the giving of the preference pursuant to that decision, which must be influenced by the desire to produce the effect of the preference. For these purposes, therefore, the relevant time is the date of the decision, not the date of giving the preference.
See also
*
Motivation
Motivation is the reason for which humans and other animals initiate, continue, or terminate a behavior at a given time. Motivational states are commonly understood as forces acting within the agent that create a disposition to engage in goal-dire ...
*
Ordinal Priority Approach
*
Preference-based planning
In artificial intelligence, preference-based planning is a form of automated planning and scheduling which focuses on producing plans that additionally satisfy as many user-specified preferences as possible. In many problem domains, a task can be a ...
(in artificial intelligence)
*
Preference revelation
In public choice theory, preference revelation (also preference revelation problem) is an area of study concerned with ascertaining the public's demand for public goods. According to some economists, if government planners do not have "full knowl ...
*
Choice
A choice is the range of different things from which a being can choose. The arrival at a choice may incorporate motivators and models. For example, a traveler might choose a route for a journey based on the preference of arriving at a give ...
*
Pairwise comparison
Pairwise comparison generally is any process of comparing entities in pairs to judge which of each entity is preferred, or has a greater amount of some quantitative property, or whether or not the two entities are identical. The method of pairwi ...
References
General
*Brehm, J.W. (1956). Post-decision changes in desirability of choice alternatives. Journal of Abnormal and Social Psychology, 52, 384-389.
*Coppin, G., Delplanque, S., Cayeux, I., Porcherot, C., & Sander, D. (2010). I'm no longer torn after choice: How explicit choices can implicitly shape preferences for odors. Psychological Science, 21, 489-493.
*Lichtenstein, S., & Slovic, P. (2006). The construction of preference. New York: Cambridge University Press.
*Scherer, K.R. (2005). What are emotions? And how can they be measured? Social Science Information, 44, 695-729.
*Sharot, T., De Martino, B., & Dolan, R.J. (2009). How choice reveals and shapes expected hedonic outcome. Journal of Neuroscience, 29, 3760-3765.
External links
Stanford Encyclopedia of Philosophy article on 'Preferences'* (white paper from International Communications Research)
{{Authority control
Psychological attitude
Utility
Free will
Decision-making