Preference, Value, Choice and Welfare: A Philosophical Insight to Economics

Guest Author: Daniel M. Hausman

Preference, Value, Choice and Welfare (PVCW), which is the winner of the American Philosophical Association’s 2012 Joseph B. Gittler award for the best work in philosophy of social science, is concerned with the concept of preferences as used in everyday talk and especially in economics. Preference is not only the central concept in mainstream positive economics; it is equally central to mainstream normative economics. I argue that preferences, as employed in mainstream economics, are total subjective comparative evaluations. They are subjective, because they combine with beliefs to explain choices among feasible alternatives. Unlike desires, they are comparative (people prefers one state of affairs to another), and because economists take preferences in combination with beliefs to determine choices, they must be total comparisons – that is, comparisons that take into account everything that the agent takes to be relevant. Preferences are evaluations, rather than judgments or mere expressions of taste, because tastes do not exhaust the considerations relevant to choice, and judgments do not by themselves motivate action.  Because preferences are total comparisons, they are cognitively demanding. Indeed the standard axioms of completeness and transitivity impose extravagant cognitive demands, and Amartya Sen is right to doubt whether it is always useful to model agents as capable of adjudicating all of the many considerations influencing the evaluation of alternatives and as possessing a single preference ranking. Despite the idealization it requires, this notion of preferences and what I call the “standard” model of choice that depends on it are useful tools for social scientists, including especially economists. But I do not argue that the standard model is the only fruitful way of modeling choice. Indeed, there are questions concerning, for example, agency and self-governance that the standard model does not help to answer. In my view, the choice between the economist’s model of choice and competing models with multiple preference rankings or with emotions, perceptions and drives in place of preferences and beliefs turns on their usefulness for the purposes at hand, not on their truth.

            Although part 2 of PVCW begins with a critique of the view that preference satisfaction constitutes welfare, it offers a qualified defense of the welfare economist’s reliance on information concerning preferences to draw conclusions concerning welfare. Without committing themselves to any theory of welfare, economists can infer from the preferences of self-interested, well-informed and rational individuals what is good for them. (Since individuals are not always self-interested, their beliefs are often false, and their rationality often tenuous, this is far from a blanket defense!) Part 3 makes a foray into the psychological complexities of choice and argues that they do not preclude modeling a good deal of action, as economists do, as determined by preferences, beliefs and constraints.  At the same time, these complexities show that the economist’s model of choice leaves many questions open. Tying preference so closely to choice evades rather than solves the hard problems in explaining, predicting, and evaluating choices. The problems reappear as soon as one asks – as economists often should – how preferences are determined and modified.

Author’s Bio: Daniel M. Hausman is the Herbert A. Simon and Hilldale Professor of Philosophy at the University of Wisconsin-Madison. His research has centered on epistemological, metaphysical, and ethical issues lying at the boundaries between economics and philosophy and metaphysical questions concerning the nature of causation. He is currently working on questions concerning how to value health. In 2009, Hausman was elected to the American Academy of Arts and Sciences.

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