Preference (economics)

In economics, and in other social sciences, preference refers to an order by which an agent, while in search of an "optimal choice", ranks alternatives based on their respective utility. Preferences are evaluations that concern matters of value, in relation to practical reasoning. Individual preferences are determined by taste, need, ..., as opposed to price, availability or personal income. Classical economics assumes that people act in their best (rational) interest. In this context, rationality would dictate that, when given a choice, an individual will select an option that maximizes their self-interest. But preferences are not always transitive, both because real humans are far from always being rational and because in some situations preferences can form cycles, in which case there exists no well-defined optimal choice. An example of this is Efron dice. The concept of preference plays a key role in many disciplines, including moral philosophy and decision theory. The logical properties that preferences possess also have major effects on rational choice theory, which in turn affects all modern economic topics. Using the scientific method, social scientists aim to model how people make practical decisions in order to explain the causal underpinnings of human behaviour or to predict future behaviours. Although economists are not typically interested in the specific causes of a person's preferences, they are interested in the theory of choice because it gives a background to empirical demand analysis. Stability of preference is a deep assumption behind most economic models. Gary Becker drew attention to this with his remark that "the combined assumptions of maximizing behavior, market equilibrium, and stable preferences, used relentlessly and unflinchingly, form the heart of the economic approach as it is." More complex conditions of adaptive preference were explored by Carl Christian von Weizsäcker in his paper "The Welfare Economics of Adaptive Preferences" (2005). Traditional neoclassical economics has worked with the assumption that the preferences of agents in the economy are fixed. This assumption has always been disputed outside neoclassical economics.

Background The representation of preferences by a Utility Function in an ordinal way is grounded in relational systems.

… excerpt ends here. Continue reading the full article.