Hubbry Logo
PreferencePreferenceMain
Open search
Preference
Community hub
Preference
logo
7 pages, 0 posts
0 subscribers
Be the first to start a discussion here.
Be the first to start a discussion here.
Preference
Preference
Preference
View on Wikipedia
from Wikipedia

In psychology, economics and philosophy, preference is a technical term usually used in relation to choosing between alternatives. For example, someone prefers A over B if they would rather choose A than B. Preferences are central to decision theory 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. 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, the term is used to determine which outstanding obligation the insolvent party has to settle first.

Psychology

[edit]

In psychology, preferences refer to an individual's attitude towards a set of objects, typically reflected in an explicit decision-making process.[1] The term is also used to mean evaluative judgment in the sense of liking or disliking an object, as in Scherer (2005),[2] which is the most typical definition employed in psychology. It does not mean that a preference is necessarily stable over time. Preference can be notably modified by decision-making processes, such as choices,[3][4] even unconsciously.[5] 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.[6]

Economics

[edit]
Main article: Preference (economics)

In economics and other social sciences, preference refers to the set of assumptions related to ordering some alternatives, based on the degree of happiness, satisfaction, gratification, morality, enjoyment, or utility they provide. The concept of preferences is used in post-World War II neoclassical economics to provide observable evidence in relation to people's actions.[7] These actions can be described by Rational Choice Theory, where individuals make decisions based on rational preferences which are aligned with their self-interests in order to achieve an optimal outcome.[8]

Consumer preference, or consumers' preference for particular brands over identical products and services, is an important notion in the psychological influence of consumption. Consumer preferences have three properties: completeness, transitivity and non-satiation. For a preference to be rational, it must satisfy the axioms of transitivity and Completeness (statistics). 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.[9][10] 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, or is indifferent between them.[9][10] 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.[11]

An example of transitive and complete preferences.

If preferences are both transitive and complete, the relationship between preference can be described by a utility function.[12] This is because the axioms allow for preferences to be ordered into one equivalent ordering with no preference cycles.[13] Maximising utility does not imply maximise happiness, rather it is an optimisation of the available options based on an individual's preferences.[14] The so-called Expected Utility Theory (EUT), which was introduced by John von Neumann and Oskar Morgenstern in 1944, explains that so long as an agent's preferences over risky options follow a set of axioms, then he is maximizing the expected value of a utility function.[15] In utility theory, preference relates to decision makers' attitudes towards rewards and hazards. The specific varieties are classified into three categories: 1) risk-averse, that is, equal gains and losses, with investors participating when the loss probability is less than 50%; 2) the risk-taking kind, which is the polar opposite of type 1); 3) Relatively risk-neutral, in the sense that the introduction of risk has no clear association with the decision maker's choice.[16]

The mathematical foundations of most common types of preferences — that are representable by quadratic or additive functions — laid down by Gérard Debreu[17][18] enabled Andranik Tangian 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.[19][20]

Empirical evidence has shown that the usage of rational preferences (and Rational Choice Theory) does not always accurately predict human behaviour because it makes unrealistic assumptions.[21][22][23] In response to this, neoclassical economists argue that it provides a normative model for people to adjust and optimise their actions.[24] Behavioural economics describes an alternative approach to predicting human behaviour by using psychological theory which explores deviations from rational preferences and the standard economic model.[25] It also recognises that rational preferences and choices are limited by heuristics and biases. Heuristics are rules of thumb such as elimination by aspects which are used to make decisions rather than maximising the utility function.[26] Economic biases such as reference points and loss aversion also violate the assumption of rational preferences by causing individuals to act irrationally.[27]

Individual preferences can be represented as an indifference curve given the underlying assumptions. Indifference curves graphically depict all product combinations that yield the same amount of usefulness. Indifference curves allow us to graphically define and rank all possible combinations of two commodities.[28]

The graph's three main points are:

  1. If more is better, the indifference curve dips downward.
  2. Greater transitivity indicates that the indifference curves do not overlap.
  3. A propensity for diversity causes indifference curves to curve inward.

Risk preference

[edit]

Risk preference is defined as how much risk a person is prepared to accept based on the expected utility or pleasure of the outcome.

Risk tolerance is a critical component of personal financial planning, that is, risk preference.

In psychology, risk preference is occasionally characterised as the proclivity to engage in a behaviour or activity that is advantageous but may involve some potential loss, such as substance abuse or criminal action that may bring significant bodily and mental harm to the individual.[29]

In economics, risk preference refers to a proclivity to engage in behaviours or activities that entail greater variance returns, regardless of whether they be gains or losses, and are frequently associated with monetary rewards involving lotteries.[30]

There are two different traditions of measuring preference for risk, the revealed and stated preference traditions, which coexist in psychology, and to some extent in economics as well.[31][32][33]

Risk preference evaluated from stated preferences emerges as a concept with significant temporal stability, but revealed preference measures do not.[34]

Relation to desires

[edit]

Preferences and desires are two closely related notions: they are both conative states that determine our behavior.[35] 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.[36][35] The focus on preferences instead of desires is very common in the field of decision theory. It has been argued that desire is the more fundamental notion and that preferences are to be defined in terms of desires.[37][36][35] 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.[37] 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.[37][35] 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.[37]

Insolvency

[edit]

In insolvency, 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.[38] 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.[39] 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.[39] Also, under the English Insolvency Act 1986, 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.[40] 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.[41]

See also

[edit]

References

[edit]
[edit]
Revisions and contributorsEdit on WikipediaRead on Wikipedia

Preference

View on Grokipedia
from Grokipedia
In , , and , preference refers to a subjective comparative evaluation by an individual or agent that ranks alternatives based on perceived value, , or desirability, guiding choices in decision-making processes. This concept underpins rational choice theory, where preferences are assumed to be complete—encompassing all possible alternatives—and transitive, meaning if option A is preferred to B and B to C, then A is preferred to C—to model consistent behavior under . In economic models, preferences shifted from cardinal (measurable intensity, as in early utility theory) to ordinal rankings in the early , emphasizing relative order over absolute quantification to predict consumer choices without interpersonal comparisons. Psychologically, preferences are not always stable or innate but often constructed dynamically during decision contexts, influenced by framing, , and cognitive biases, as evidenced by showing that may reverse preferences when options are presented differently. This construction view challenges traditional assumptions of fixed tastes, highlighting how external cues like defaults or social norms can shape inclinations toward risks, time delays, or interpersonal outcomes. Philosophically, preferences relate to practical reasoning and , serving as evaluations in and ethical deliberations, such as in where they inform impartial choices about justice. Across disciplines, empirical methods like analysis—deriving rankings from observed choices—bridge and , though debates persist on whether preferences are mental states or mere behavioral patterns; recent advancements as of 2023 include computational approaches to testing these under and .

Core Concepts

Definition

Preference is fundamentally a comparative attitude or by which an or entity deems one alternative more desirable or valuable than another, serving as a cornerstone in , , and . This concept involves subjective assessments of options in relation to practical reasoning, such as determining what course of action or object is preferable, without necessarily entailing immediate behavioral commitment. Historically, the notion of preference traces its origins to 18th-century moral , particularly through David Hume's emphasis on sentiments as the basis for comparative liking, where moral distinctions arise from feelings of approval or disapproval rather than pure reason. Key characteristics of preferences include their inherently relational and ranking-oriented nature, whereby options are ordered relative to one another rather than evaluated in isolation. Preferences can be represented ordinally, capturing mere rankings of alternatives (e.g., A is preferred to B, which is preferred to C), or cardinally, assigning measurable intensities to these rankings, though the latter is more contentious and often modeled through functions that quantify preference strength. Importantly, preferences guide potential behavior by influencing choices and motivations but do not presuppose actual action, distinguishing them as predispositions rather than enacted decisions. In everyday contexts, preferences manifest in simple choices, such as an individual favoring over based on or . The concept extends across disciplines to encompass individual preferences in personal decision-making, social preferences that incorporate concerns for others' outcomes (e.g., or fairness in group allocations), and systemic preferences embedded in institutional or collective frameworks, such as policy priorities in economics or ethical norms in . Utility functions, explored further in economic modeling, provide a numerical representation of preference intensity to facilitate analysis. Preference is fundamentally distinguished from desire by its comparative nature. Whereas desires are directed toward individual objects or states—such as wanting a specific item or outcome—preferences entail relational evaluations between alternatives, such as favoring option A over option B. This distinction underscores that preferences require a contrastive framework, often involving trade-offs, while desires can exist in isolation without necessitating . Philosophers have debated whether preferences derive from the relative strengths of desires, with early analyses suggesting that the intensity of desires for competing options determines preferential rankings. In contrast to values, which represent enduring normative principles guiding moral or ethical judgments—such as commitments to justice or equality—preferences are more contingent and personal rankings that lack inherent moral obligation. Values often transcend situational contexts and impose prescriptive force, whereas preferences function as descriptive or predictive tools for individual choices, varying across scenarios without implying universality or ethical weight. For instance, one might value environmental sustainability as a core principle but still prefer a less eco-friendly product in a particular purchase due to cost or convenience. Preferences also differ from attitudes, which encompass broader, often emotionally charged evaluative dispositions toward objects, , or ideas. Attitudes integrate cognitive, affective, and behavioral components, potentially influencing long-term orientations, whereas preferences are narrower, more neutral assessments oriented toward specific and choice without the same depth of emotional involvement. This makes preferences particularly useful in analytical contexts, such as economic modeling, where they relate to representations of comparative choices. Historically, the concept of preference evolved from notions of "inclination" in , where thinkers like described it as a motivational toward certain ends amid competing impulses. By the , it shifted toward formalized comparative structures in behavioral sciences and , emphasizing transitivity and completeness to distinguish it from vaguer inclinations or whims. This progression clarified preference's role as a precise tool for understanding rational , separate from the more fluid or instinctual connotations of its philosophical precursors.

Psychological Perspectives

Formation and Influences

Preferences form through a combination of innate predispositions and learned experiences, with cognitive biases playing a central role in psychological development. The , identified by , demonstrates that repeated, non-reinforced exposure to a stimulus increases an individual's liking for it, even without conscious awareness or explicit evaluation. This bias arises from familiarity reducing uncertainty and evoking positive affective responses, influencing preferences for music, art, and social stimuli. Similarly, unconscious priming processes activate mental representations that subtly guide preferences; for instance, exposure to related concepts can enhance evaluations of consumer products by associating them with positive attributes without deliberate intent. External factors such as , social norms, and environment further shape preferences through contextual and experiential mechanisms. Cultural backgrounds influence aesthetic preferences, with in fostering greater involvement and appreciation for diverse forms like visual or . Amos Tversky's 20th-century research on context-dependent preferences highlights how the presence of alternative options alters evaluations, as seen in the attraction effect where an inferior "" option boosts preference for a target item by altering comparative judgments. Social influences, including family and peer interactions, reinforce these patterns, while environmental exposures like media or daily routines embed preferences aligned with societal values. Developmentally, preferences evolve from through interactions between innate tendencies and learning, as explored in Piaget-inspired research on cognitive stages. Infants exhibit innate preferences for sweet tastes, signaling energy-rich foods, but these are modulated by learned associations formed and during . By toddlerhood, children develop social and fairness preferences through and interaction, transitioning from self-focused to other-regarding choices around ages 2-3. Food preferences exemplify this interplay: while evolutionary adaptations favor calorie-dense or novel-safe foods for survival, upbringing strongly influences specifics, such as aversion to bitter or affinity for culturally familiar dishes, persisting into adulthood. In , these adaptive preferences prioritize nutrient detection and risk avoidance, ensuring reproductive fitness in ancestral environments.

Measurement and Stability

In , preferences are empirically assessed through various techniques designed to capture both qualitative and quantitative intensities. Surveys often employ tasks, where individuals order options by preference, providing insights into relative valuations without requiring absolute judgments. extends this by presenting hypothetical scenarios composed of multiple attributes, asking participants to rate, rank, or choose among them, which allows decomposition of preferences into component parts such as importance weights for specific features. To measure preference intensity, psychological scales like the Likert format are commonly used, typically featuring 5- or 7-point continua (e.g., from "strongly dislike" to "strongly like") to quantify the strength of affective responses toward stimuli. Preferences exhibit context-dependent variability, often constructed on the spot rather than retrieved as fixed traits, leading to malleability influenced by immediate task demands or environmental cues. In long-term decisions, adaptive preferences emerge as individuals adjust desires to align with feasible outcomes, such as scaling back aspirations under constraints to maintain psychological equilibrium. Post-2000 research highlights how such malleability supports , with short-term preferences showing greater flux compared to more stable long-term orientations, though overall stability varies by domain. Challenges in arise from inconsistencies driven by mood states or framing of options, as demonstrated in studies where equivalent choices yielded reversed preferences depending on whether outcomes were described as gains or losses. Reliability is evaluated via test-retest correlations, which assess consistency over intervals like weeks or months; meta-analyses indicate moderate stability for preference measures, with correlations typically ranging from 0.50 to 0.70, though lower for context-sensitive tasks. These metrics underscore the need for repeated assessments to account for variability, distinguishing psychological approaches from economic methods that infer stability from observed behaviors.

Economic and Decision-Making Perspectives

Modeling Preferences

In economic theory, preferences are formally modeled as binary relations over consumption bundles, which are vectors representing quantities of goods and services available to a consumer. A consumption bundle x=(x1,x2,…,xn)x = (x_1, x_2, \dots, x_n) in the consumption set X⊆R+nX \subseteq \mathbb{R}^n_+ denotes feasible combinations of nn goods. The preference relation is typically denoted by ≿\succsim, where x≿yx \succsim y indicates that bundle xx is at least as preferred as bundle yy. This encompasses strict preference ≻\succ (where x≻yx \succ y means xx is strictly preferred to yy) and indifference ∼\sim (where x∼yx \sim y means the bundles are equally preferred). A fundamental property of these relations is the completeness axiom, which ensures that preferences are well-defined for all pairs of bundles. Formally, for all x,y∈Xx, y \in X, either x≿yx \succsim y, y≿xy \succsim x, or both (implying x∼yx \sim y). This axiom guarantees that a can always compare any two options, providing a complete ordering without gaps or incommensurabilities. Under certain conditions, such as completeness and transitivity (where if x≿yx \succsim y and y≿zy \succsim z, then x≿zx \succsim z), preferences can be represented by an function U:X→RU: X \to \mathbb{R}, where x≿yx \succsim y U(x)≥U(y)U(x) \geq U(y). captures the of bundles without measuring the intensity of preferences, distinguishing it from cardinal approaches. This representation was pioneered by in his 1906 Manuale di economia politica, where he advocated ordinalism to analyze equilibrium without assuming interpersonal comparisons. Pareto's framework shifted toward relative rankings, laying groundwork for modern theory. Key visualizations in this modeling include , which depict sets of bundles yielding the same level, forming the level sets of U(x)U(x). For two goods, an traces combinations (x1,x2)(x_1, x_2) where U(x1,x2)=uˉU(x_1, x_2) = \bar{u} for some constant uˉ\bar{u}, typically downward-sloping and convex to reflect diminishing marginal rates of substitution. In consumer theory, these interact with constraints, represented as p⋅x≤mp \cdot x \leq m, where pp is the price vector and mm is income, defining the feasible set of affordable bundles. Optimal choice occurs at the tangency of an and the line, maximizing subject to affordability. This approach was formalized by John R. Hicks and R. G. D. Allen in , integrating ordinal preferences into demand analysis. These elements evolved into comprehensive general equilibrium models, such as the Arrow-Debreu framework, where individual preferences over dated, state-contingent bundles aggregate to economy-wide equilibrium under competitive markets. By incorporating and binary relations, this model demonstrates the existence of prices clearing all markets, building directly on Pareto's ordinal foundations. Psychological factors, such as cognitive biases, can influence the empirical validity of these abstract models but are incorporated sparingly in standard formulations.

Axioms and Utility Functions

In economic theory, preferences over bundles of goods or outcomes are modeled as binary relations satisfying certain axioms to ensure logical consistency and enable numerical representation. The core axioms include completeness, which requires that for any two bundles xx and yy, either x⪰yx \succeq y (weak preference), y⪰xy \succeq x, or both; reflexivity, stating that every bundle is at least as preferred as itself (x⪰xx \succeq x); and transitivity, which mandates that if x⪰yx \succeq y and y⪰zy \succeq z, then x⪰zx \succeq z. These properties collectively define a rational preference relation, allowing for consistent without cycles or gaps. A fourth axiom, continuity, ensures that the preference relation is preserved under limits: for any x≻yx \succ y (strict preference), there exist neighborhoods around xx and yy such that all bundles in the former are preferred to all in the latter, preventing discontinuities like . Empirical studies, however, reveal frequent violations of these axioms in ; for instance, transitivity is often breached in experiments where context-dependent preferences lead to cycles, such as preferring A to B, B to C, but C to A under certain conditions. One analysis of consumer choices found transitivity holding in only about 8% of cases across diverse samples. Under these axioms, particularly completeness, transitivity, and continuity, Debreu's representation theorem guarantees the existence of a continuous function U:X→RU: X \to \mathbb{R} over a XX (e.g., R+n\mathbb{R}^n_+) such that x≻yx \succ y if and only if U(x)>U(y)U(x) > U(y), and x∼yx \sim y (indifference) if U(x)=U(y)U(x) = U(y). The theorem derives from constructing such a function via separating hyperplanes in the utility differences, ensuring ordinal uniqueness up to monotonic transformations. For example, Cobb-Douglas preferences, which exhibit and satisfy the axioms, admit the form U(x1,x2)=x1ax21−aU(x_1, x_2) = x_1^a x_2^{1-a} for 0<a<10 < a < 1, where aa reflects the relative weight on good 1; this can be derived by assuming homotheticity (preferences invariant to scaling) and integrating marginal rates of substitution. These axiomatic foundations extend to applications in welfare economics, where aggregating individual preferences into social choices reveals fundamental limitations. Arrow's impossibility theorem demonstrates that no social welfare function can satisfy non-dictatorship, Pareto efficiency, independence of irrelevant alternatives, and unrestricted domain while respecting transitive individual preferences, underscoring tensions between individual rationality and collective decision-making.

Preferences Under Risk and Uncertainty

Risk Attitudes

In decision theory under risk, preferences are characterized by attitudes toward uncertainty, classified into risk aversion, risk neutrality, and risk seeking based on the shape of the utility function. Risk-averse individuals prefer a certain outcome to a risky prospect with the same expected value, reflected in a concave utility function where the utility of the expected wealth exceeds the expected utility, as per Jensen's inequality: u(E)≥E[u(w)]u(\mathbb{E}) \geq \mathbb{E}[u(w)]. Risk neutrality corresponds to a linear utility function, where individuals are indifferent between certain and risky outcomes with equal expected values, such that u(E)=E[u(w)]u(\mathbb{E}) = \mathbb{E}[u(w)]. In contrast, risk-seeking preferences feature a convex utility function, leading to a preference for risky prospects over certain equivalents, with u(E)≤E[u(w)]u(\mathbb{E}) \leq \mathbb{E}[u(w)]. These attitudes form the foundation of expected utility theory, formalized by von Neumann and Morgenstern in 1944, which posits that rational preferences over lotteries satisfy axioms like completeness, transitivity, continuity, and independence, yielding a cardinal utility representation for choices under risk. Risk attitudes are quantified through certainty equivalents, the guaranteed amount that makes an individual indifferent to a given lottery; for risk-averse persons, this is below the lottery's expected value, while for risk seekers it exceeds it. Stated preferences are elicited via hypothetical gambles, where respondents choose between safe payments and probabilistic outcomes to infer their utility curvature. Revealed preferences, conversely, are observed from market behaviors, such as purchasing insurance policies that entail a negative expected monetary value, signaling risk aversion as individuals pay premiums to avoid potential losses. A seminal measure of risk aversion intensity is the Arrow-Pratt coefficient of absolute risk aversion, defined as r(w)=−u′′(w)u′(w)r(w) = -\frac{u''(w)}{u'(w)}, where higher values indicate greater aversion at wealth level ww; this local measure, introduced by Pratt in 1964, facilitates comparisons across utility functions and agents. The St. Petersburg paradox, posed by Nicolaus Bernoulli in 1713, exemplifies early challenges to risk attitudes, involving a coin-flip game with infinite expected value yet finite willingness to pay, highlighting the need for concave utility to resolve such discrepancies in expected monetary value calculations.

Behavioral Deviations

Behavioral economics has revealed several empirical deviations from classical expected utility theory in how individuals form preferences under risk, highlighting systematic inconsistencies in decision-making. One foundational challenge is the Allais paradox, which demonstrates violations of the independence axiom by showing that people often prefer certain outcomes over risky ones in ways that cannot be reconciled with expected utility maximization. In Allais's 1952 experiments, participants chose a guaranteed $1 million over a 10% chance at $5 million and an 89% chance at $1 million, but switched preferences when the certain option was replaced by a near-certain one with added risk to both alternatives, revealing a certainty effect that prioritizes avoiding uncertainty over consistent probabilistic weighting. Prospect theory, developed by Kahneman and Tversky, provides a descriptive alternative that accounts for these anomalies through an asymmetric value function and nonlinear probability weighting. The value function v(x)v(x) is concave for gains and convex for losses, steeper for losses than gains (capturing loss aversion), and defined relative to a reference point rather than final wealth, leading individuals to evaluate outcomes as deviations from this point. Probability weighting is handled by a function π(p)\pi(p) that overweight small probabilities and underweight moderate to high ones, distorting perceived chances. The overall prospect value is calculated as
V=π(p+)v(x+)+π(p−)v(x−)V = \pi(p^+) v(x^+) + \pi(p^-) v(x^-)
where gains and losses are evaluated separately. This framework better explains observed behaviors like risk-seeking in losses and risk-aversion in gains, as validated in experimental settings. Related biases further illustrate these deviations, such as the endowment effect, where ownership increases perceived value, causing willingness-to-accept to exceed willingness-to-pay for the same good. In controlled experiments, participants endowed with mugs demanded roughly twice as much to sell them as non-endowed participants were willing to pay, persisting even in market-like settings with trading opportunities. Similarly, status quo bias leads individuals to disproportionately favor maintaining current options over alternatives of equal or better value, driven by loss aversion relative to the status quo as a reference point; for instance, hypothetical retirement plan choices showed over 40% more selections for the default option when framed as such. These effects underscore how reference dependence and loss aversion shape preferences beyond rational utility calculations. Post-2010 neuroeconomic research using brain imaging has illuminated the neural underpinnings of these risk preferences, showing distinct activations for gain and loss domains. Functional MRI studies reveal that the anterior insula processes risk as an aversive signal, particularly for losses, while the ventral striatum encodes expected rewards, supporting prospect theory's asymmetry; for example, loss aversion correlates with stronger insula responses to potential losses compared to striatal activation for gains. Critiques of expected utility during the 2008 financial crisis highlighted how ambiguity and overconfidence, amplified by behavioral biases, led to underestimation of tail risks in mortgage-backed securities, as agents overweighted recent gains and ignored low-probability crashes, contributing to systemic failures. In post-2020 behavioral finance applications to digital assets like cryptocurrencies, these deviations manifest prominently due to high volatility and speculative nature; herding and overconfidence biases drive boom-bust cycles, with investors exhibiting disposition effects by holding losing positions longer amid FOMO (fear of missing out), as evidenced in analyses of trading data during the 2021 bull run. Prospect theory's probability weighting explains overweighting of rare high-return events in crypto preferences, leading to riskier portfolios than expected utility would predict.

Philosophical Dimensions

Relation to Desires

In philosophy, preferences are often conceptualized as comparative attitudes toward options. This view examines preferences within the structure of practical reasoning. The Humean tradition emphasizes that preferences emerge directly from passions, which include desires as motivational forces independent of reason's substantive guidance. David Hume argued that reason serves only as an instrument to achieve desired ends, with preferences shaped by the balance of pleasurable and painful impressions rather than rational evaluation of their content. In contrast, the Kantian perspective subordinates preferences—and the desires underlying them—to the demands of pure practical reason, viewing them as potentially irrational if they conflict with moral imperatives derived from the categorical imperative. Immanuel Kant maintained that true rationality requires aligning desires with universalizable maxims, rendering unchecked preferences secondary to reason's authority in determining worthwhile ends. Modern analytic philosophy, as explored by John Broome, further examines this relation within the structure of practical reasoning, where preferences inform intentions but must cohere with beliefs and normative requirements to avoid practical inconsistency. Broome contends that reasoning cannot directly transform a mere preference into an intention without additional normative elements, highlighting preferences' dependence on desires yet their vulnerability to rational scrutiny. A significant concept linking desires to preferences is incommensurability, where desires for distinct goods lack a common scale of comparison, potentially generating preference cycles that violate transitivity. For instance, if desires for family time, career advancement, and leisure are incommensurable, an agent might cyclically prefer one over another without a stable ordering, as logical arguments demonstrate that such failures in desire satisfaction undermine consistent preference rankings. Feminist critiques, particularly from Martha Nussbaum, address adaptive preferences as distorted desires formed under oppressive conditions, where individuals internalize limited options and prefer them as if they were freely chosen. Nussbaum argues that such adaptations, often seen in women's acceptance of gender-based inequalities due to lack of alternatives, invalidate preference-based accounts of well-being, calling for objective capabilities to override these manipulated desires and promote genuine autonomy. This perspective challenges reductionist views by revealing how social structures can warp the desire-preference link, necessitating interventions beyond mere satisfaction of expressed wants.

Rationality and Ethical Implications

In decision theory, preferences are considered rational if they satisfy a set of axioms that ensure consistency and coherence in choice behavior, including completeness (every pair of alternatives is comparable) and transitivity (if option A is preferred to B and B to C, then A is preferred to C). These axioms, formalized in expected utility theory, allow for the representation of preferences via a utility function that captures an agent's ordinal rankings without interpersonal comparisons. Violations of transitivity, such as cyclic preferences (A > B > C > A), render incoherent, as demonstrated by the money pump argument, where an agent with intransitive preferences can be exploited through a series of trades that result in net loss, regardless of starting point. Ethically, the rationality of preferences intersects with concerns over , where interventions may override seemingly irrational choices to promote welfare, as in , which advocates subtle environmental cues to guide decisions without restricting freedom, such as default options to increase participation rates. In , aggregating individual preferences under Rawls's veil of ignorance—where decision-makers design social institutions without knowing their own position—prioritizes fairness by ensuring principles that protect the least advantaged, thereby mitigating biases in preference-based . Amartya Sen's 1970 theorem highlights a tension between (no one worse off without someone better off) and (individuals decisive over personal domains), proving it impossible to satisfy both without violating in some preference profiles, such as conflicting views on personal matters like arrangements. Modern implications extend these debates to , where systems must infer and adhere to human preferences to avoid unintended harm, as post-2020 research emphasizes learning latent human values through inverse reinforcement learning rather than fixed objectives, addressing challenges like reward misspecification in autonomous agents. In , preference autonomy raises questions about intervening in adaptive or manipulated preferences, such as in cases of diminished capacity where clinicians balance respect for prior wishes against current well-being, underscoring the ethical limits of overriding choices in or treatment.

Applied Contexts

In insolvency , a preference refers to a transfer of or made by a to a specific shortly before the commencement of insolvency proceedings, which favors that creditor over others and undermines the principle of equitable distribution among creditors. This mechanism allows insolvency practitioners, such as trustees in bankruptcy, to avoid or claw back such transfers to restore parity. The primary goal is to prevent debtors from selectively paying favored creditors, ensuring that assets are distributed proportionally according to statutory priorities. In the United States, preferential transfers are governed by Section 547 of the Code (11 U.S.C. § 547), which empowers a to avoid any transfer of the 's in made to a on account of an antecedent debt, while the was insolvent, within 90 days before the bankruptcy filing (or one year if the creditor is an insider, such as a relative or affiliate). The is presumed insolvent during the 90-day look-back period, shifting the burden to the to rebut this with of . To qualify as avoidable, the transfer must enable the to receive more than they would in a Chapter 7 distribution. Defenses include the "ordinary course of business" exception, where payments made in the normal course of the - relationship are protected, provided they align with industry standards and prior practices. In the , preferences are addressed under Sections 239 (for companies) and 340 (for individuals) of the Act 1986, defining a preference as any act or omission by the that puts a , , or guarantor in a better position upon winding up or than they would otherwise enjoy, influenced by a desire to produce that effect. The relevant period is six months before the onset of (or two years for connected persons, like directors or associates), and the must have been unable to pay debts at the time or become unable as a result. Courts apply a subjective test to determine the desire to prefer, often inferred from circumstances, but exceptions apply for transactions in the ordinary course of business or those providing new value to the estate. Globally, efforts toward harmonization include the European Union's Directive (EU) 2019/1023 on preventive restructuring frameworks, which mandates member states to implement minimum standards for avoidance actions, including those targeting preferential transfers detrimental to the creditor body, to facilitate cross-border insolvencies and promote equitable recovery. For instance, in practice, courts may claw back payments such as late invoice settlements to insiders if they fail ordinary course tests, as seen in cases where trustees recover funds to augment the estate for all creditors. These provisions collectively uphold the principle, prioritizing fair asset distribution over opportunistic pre-insolvency maneuvers.

Modern Interdisciplinary Uses

In and , preference elicitation plays a key role in recommender systems, where techniques like aggregate user-item interactions to predict and suggest preferences based on similarities among users. This method, foundational since the late 1990s, enables scalable personalization by learning latent preference structures without explicit queries, as demonstrated in systems like Netflix's recommendation engine. Complementing this, inverse reinforcement learning (IRL) infers underlying reward functions from observed human behaviors to model preferences, originally formulated by Ng and Russell in 2000 for Markov decision processes. In the 2020s, IRL has been extended to large language models (LLMs), where it supports alignment techniques such as (RLHF) to better capture nuanced human preferences in generative tasks. Sociological applications of preferences emphasize social and collective dimensions through game-theoretic experiments, such as the , which highlights fairness as a social preference where proposers typically offer equitable splits to responders to avoid rejection of low offers. Seminal studies, including Güth et al. (1982), established that human decisions deviate from pure , revealing intrinsic motivations for reciprocity and equity in social interactions. Cultural variations further shape collective preferences, with research showing that individualistic societies prioritize personal autonomy in preference expression, while collectivist cultures emphasize group harmony and in shared decisions. For instance, analyses indicate that East Asian groups exhibit stronger alignment in collective risk preferences compared to Western counterparts, influencing outcomes in dilemmas. In policy contexts, stated preference methods like have advanced by quantifying non-market values through hypothetical scenarios, notably in the 1989 case where surveys estimated passive-use damages at approximately $2.8 billion. This approach, validated in court, established as a tool for policy valuation of public goods like ecosystems. Similarly, voting systems aggregate individual preferences to select outcomes, with the Condorcet criterion serving as a benchmark for fairness by requiring the winner to pairwise defeat all alternatives in preferences. Modern implementations, such as ranked-choice voting variants, aim to satisfy this criterion to mitigate paradoxes in preference aggregation. Recent developments underscore preferences' role in interdisciplinary regulation and inclusivity. The 2024 EU AI Act imposes obligations on high-risk AI systems to ensure transparency, fairness, and human oversight, indirectly requiring algorithms to align with diverse user preferences to mitigate biases in . Additionally, emerging research on in preference modeling advocates for AI systems that accommodate varied cognitive styles, such as autism spectrum differences in sensory or social preferences, to foster equitable technology design.

References

  1. https://plato.stanford.edu/entries/preferences/
  2. http://bear.warrington.ufl.edu/brenner/mar7588/Papers/slovic-ampsy1995.pdf
  3. https://www.bostonfed.org/conference/48/camerer.pdf
  4. https://www.annualreviews.org/content/journals/10.1146/annurev-economics-082019-110800
  5. https://plato.stanford.edu/entries/hume-moral/
  6. https://www.aeaweb.org/articles?id=10.1257/jel.20241391
  7. https://www.philosophyetc.net/2007/09/desires-and-preferences.html
  8. https://www.cambridge.org/core/journals/economics-and-philosophy/article/preferences-vs-desires-debating-the-fundamental-structure-of-conative-states/D9F64274C260BD4EB0AF7D6CC2D5991F
  9. https://pubmed.ncbi.nlm.nih.gov/9353653/
  10. https://pubmed.ncbi.nlm.nih.gov/12546291/
  11. https://www.cambridge.org/core/journals/economics-and-philosophy/article/in-defence-of-revealed-preference-theory/3978A5D98D7A1A30E399F356483BD496
  12. https://cdn.isr.umich.edu/pubFiles/historicPublications/Theattitudinaleffects_2360_.PDF
  13. https://pmc.ncbi.nlm.nih.gov/articles/PMC5783538/
  14. https://www.researchgate.net/publication/6777246_Aesthetic_activities_and_aesthetic_attitudes_Influences_of_education_background_and_personality_on_interest_and_involvement_in_the_arts
  15. https://pubsonline.informs.org/doi/10.1287/mnsc.39.10.1179
  16. https://pubmed.ncbi.nlm.nih.gov/21508837/
  17. https://pmc.ncbi.nlm.nih.gov/articles/PMC8243778/
  18. https://pubmed.ncbi.nlm.nih.gov/9478037/
  19. https://www.sciencedirect.com/science/article/pii/S0960982213004181
  20. https://pmc.ncbi.nlm.nih.gov/articles/PMC8879380/
  21. https://www.sciencedirect.com/topics/psychology/conjoint-analysis
  22. https://www.sciencedirect.com/topics/psychology/likert-scale
  23. https://psycnet.apa.org/record/1992-22292-001
  24. https://digitalcommons.unl.edu/cgi/viewcontent.cgi?referer=&httpsredir=1&article=1524&context=psychfacpub
  25. https://www.nature.com/articles/s41598-022-22416-5
  26. https://www.science.org/doi/10.1126/science.7455683
  27. https://pmc.ncbi.nlm.nih.gov/articles/PMC11078611/
  28. https://www.sciencedirect.com/topics/psychology/test-retest-reliability
  29. https://global.oup.com/academic/product/microeconomic-theory-9780195073409
  30. http://users.econ.umn.edu/~jchipman/DALLOZ5.pdf
  31. https://dspace.gipe.ac.in/xmlui/bitstream/handle/10973/460/6-144256.pdf?sequence=1&isAllowed=y
  32. https://www.jstor.org/stable/2548574
  33. https://web.stanford.edu/class/msande311/arrow-debreu.pdf
  34. https://assets.press.princeton.edu/chapters/s9890.pdf
  35. https://www.econ.ucla.edu/sboard/teaching/econ11_notes.pdf
  36. https://dspace.mit.edu/bitstream/handle/1721.1/109484/14-03-fall-2010/contents/lecture-notes/MIT14_03F10_lec03.pdf
  37. https://pages.ucsd.edu/~mckenzie/Tversky1969PsychReview.pdf
  38. https://www.sciencedirect.com/science/article/pii/S2405844020303042
  39. https://www.scirp.org/reference/referencespapers?referenceid=1774966
  40. https://swopec.hhs.se/hastef/papers/hastef0701.pdf
  41. https://yalebooks.yale.edu/book/9780300179316/social-choice-and-individual-values/
  42. https://ocw.mit.edu/courses/14-123-microeconomic-theory-iii-spring-2015/f7d39636011bcb5ab9e0ef9dca295ccf_MIT14_123S15_Chap3.pdf
  43. https://faculty.fiu.edu/~boydj/microii/microu02-l.pdf
  44. https://scholar.harvard.edu/files/jonathanpbeauchamp/files/psychometrics_and_empirical_prop_risk_pref-online_supplement.pdf
  45. https://www.sciencedirect.com/science/article/pii/S221480432100121X
  46. https://www.jstor.org/stable/1913738
  47. https://plato.stanford.edu/entries/paradox-stpetersburg/
  48. https://www.jstor.org/stable/1907921
  49. https://www.econometricsociety.org/publications/econometrica/1979/03/01/prospect-theory-analysis-decision-under-risk
  50. https://web.mit.edu/curhan/www/docs/Articles/15341_Readings/Behavioral_Decision_Theory/Kahneman_et_al_1990_Experimental_tests.pdf
  51. https://scholar.harvard.edu/files/rzeckhauser/files/status_quo_bias_in_decision_making.pdf
  52. https://pmc.ncbi.nlm.nih.gov/articles/PMC9124684/
  53. https://www.cambridge.org/core/journals/international-organization/article/uncertainty-risk-and-the-financial-crisis-of-2008/21562A52134CC4271FB24E5D63CE9DBB
  54. https://journals.sagepub.com/doi/10.1177/21582440251361212
  55. https://philosophy.unc.edu/wp-content/uploads/sites/122/2013/10/Humes-Robust-Theory-of-Practical-Reason.pdf
  56. https://philarchive.org/archive/DIEWDP
  57. https://dspace.mit.edu/bitstream/handle/1721.1/45898/320525627-MIT.pdf?sequence=2
  58. https://home.sandiego.edu/~baber/research/adaptivepreference.pdf
  59. https://genderbudgeting.files.wordpress.com/2012/12/nussbaum_women_capabilityapproach2000.pdf
  60. https://www.law.cornell.edu/uscode/text/11/547
  61. https://www.americanbar.org/groups/business_law/resources/business-law-today/2010-march/preferences-when-can-a-trustee-claw-back-payments-to-creditors/
  62. https://www.cooley.com/services/practice/business-restructuring/bankruptcy-preferences-faq
  63. https://uk.practicallaw.thomsonreuters.com/9-107-7027?transitionType=Default&contextData=%28sc.Default%29
  64. https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32019L1023
  65. https://md.ekstrandom.net/pubs/cf-survey.pdf
  66. https://ai.stanford.edu/~ang/papers/icml00-irl.pdf
  67. https://proceedings.neurips.cc/paper_files/paper/2024/file/a5036c166e44b731f214f41813364d01-Paper-Conference.pdf
  68. https://www.econstor.eu/bitstream/10419/51672/1/67052879X.pdf
  69. https://pmc.ncbi.nlm.nih.gov/articles/PMC10548130/
  70. https://economics.ucsd.edu/~rcarson/papers/ExxonERE.pdf
  71. https://link.springer.com/article/10.1023/A:1024486702104
  72. https://fairvote.org/why-the-condorcet-criterion-is-less-important-than-it-seems/
  73. https://www.csis.org/analysis/world-dominated-ai-neurodiversity-matters-more-ever
Add your contribution
Related Hubs
User Avatar
No comments yet.