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November 02, 2016

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Luis Enrique

in my twitter exchange with Jo I cited Ken Binmore who makes distinction between intrinsic and instrumental preferences. So if you have an intrinsic preference for relative status, whether that implies deriving utility from (the instrument of) owning a BMW or a Toyota Prius is socially determined. So textbook econ does say preferences over all sorts of things are socially determined.

Patrick Kirk

So are things like industriousness and scientific curiosity artifacts of some cultures explaining why only some parts of the world thrive?

Luis Enrique

you ask about mechanisms: you could argue there is an evolutionary advantage to caring about relative status, so that we strive to improve our performance in some sense, but perhaps there is something else at work: there could also an advantage to calibrating our preferences so that they are realistic, or reasonable, given our situation. And to do that, you have to learn from others. Should I feel pleased with how my life has turned out? Even if I do not directly care about being considerably richer than you
https://www.youtube.com/watch?v=JNa-KLhUfU4
I still need to benchmark my satisfaction against something. Caring about relative consumption is often cast in a very negative light but I think in some very fundamental ways we need to make relative judgments.

I have a 45 min commute to work, how I feel about that must be informed to a degree by whether 45 mins is actually quite good going, given current level of transport technology and geography of house prices etc.

If you think about exerting effort to either change things you get dis-utility from or attain things you get utility from, if your preferences are way out of whack with what's reasonable or typical or feasible, that's a recipe unhappiness and inefficient effort.

If I experience extreme dis-utility from 45 minute commute and actually 5 minute commutes a perfectly feasible (most people have short commutes) then with some small effort I can make myself happier, whereas if 45m already on the short side, I might have to exert huge efforts and sacrifice a lot else to shave 10 mins off.

I guess this is just the familiar idea of adaptive preferences. But if you really think about starting with some exogenous random draw of preferences from the set of all possible preference, you could find yourself miles away from ever being remotely satisfied with your life, so *of course* you need to acquire preferences that are calibrated to the situation you find yourself in, and, I think, that implies you preferences must be learnt from others. Now I write it, it's all rather obvious, but rather than hit delete I will hit post.

(also, if conventional welfare economics is that people are the best judge of their own interests, I think it take a lot more than people being susceptible advertising etc. before that is thrown into doubt. I think it's more like asserting that conventional welfare is economics is only 90% right as opposed to 100% right. )

Jo Michell

My comment that preferences are *mostly* socially determined was too strong. I think 'preferences are socially determined to a greater extent than usually acknowledged by economists' is a better statement.

Regarding the comment above on instrumental versus intrinsic preferences, I'm not convinced this saves the textbook model. Is a 'preference' for social status really intrinsic rather than learned or socially conditioned?

It's also telling that Binmore's example isn't about cars and social status - it's about a 'girl' called Pandora who chooses to wear a short skirt (an instrumental preference) in order to attract boys (her intrinsic preference). This seems both sexist and very thin on sociological content.

Luis Enrique

Jo,

it's an obnoxious choice of example, other than Ken's character, I am not sure what it is telling about.

I don't think there's a sharp dividing line between intrinsic and learnt, and in any given model there is a decision about what to take as immutable and what not, but if you look across all societies and all of history, how many of them exhibit concern with status? I am guessing a lot.

Luis Enrique

further - the textbook model is saved, or not, to the extent it makes sense in context to model preferences as exogenous. It's easy to slip into talking about what economists believe or think, when really you are talking about the choices they make in models not what they actually believe about the world. Economists are quite a strange bunch, but most of them are aware of advertising, for example.

BruceMcF

"the textbook model is saved, or not, to the extent it makes sense in context to model preferences as exogenous."

Note that an intrinsic preference for social status does not save the textbook model by making it make sense to model preferences as exogenous, since the textbook modeling requires preferences among choices in economic transactions to be exogenous, and an exogenous preference for social status driving choices in economic transactions leaves choices in economic transactions endogenous to evolving determinants of social status.

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