Endogenous preferences

One of the big and (therefore?) overlooked questions in social affairs is: what's endogenous? I say this because Noah has pointed out that people's preferences are sensitive to how choices are framed. This contradicts standard neoclassical economics, which takes them as given, or exogenous.

In truth, Noah is only touching the tip of an iceberg here. A lot things which are sometimes assumed to be exogenous exemplifications of personal character might in fact be the endogenous product of situations. For example:

 - Preferences adapt to circumstances. Although we associate this idea with Jon Elster's classic book, it was expressed earlier by G. K. Chesterton: "No man demands what he desires; each man demands what he fancies he can get." For example, if we see an unemployed man not looking hard for work, should we believe he is lazy, or should we instead suspect that his lack of job seaech is because he's reduced his preferences to fit the fact that there's no work available?

- People live up or down to their stereotypes. For example, women who are primed in such a way as to increase the salience of their gender become less competitive and select into "feminine" careers relative to women who are not so primed. If women earn less than men because of their career paths, should we thus assume this reflects women's exogenously differently preferences, or rather endogenous social conditioning?

 - Confidence is endogenous; the well-paid become more confident. This can lead to further inequality, as the confident push for promotions and make risky investments, whilst others lack the confidence to be ambitious.

 - Morality is endogenous; the poor can't afford moral principles, whilst the rich don't need them. So moral codes are stronger among the middling sorts.

All this corroborates Marx:

The mode of production of material life conditions the general process of social, political and intellectual life. It is not the consciousness of men that determines their existence, but their social existence that determines their consciousness.

There's another example of endogeneity though - benefit fraud.Justina Fischer and Benno Torgler show that people's willingness to claim benefits they are not entitled to is higher the greater is inequality. There's a simple reason for this. We are all inclined to act better towards people like ourselves than towards others. The more inegalitarian a society is, the more likely claimants are to regard taxpayers as "others", and so the more willing they'll be to fiddle them.

To the extent that this is the case, complaining about benefit fraud is mistaking the symptom for the disease.

Now, rightists might reply here that even if benefit fraud is endogenous, it is still morally wrong and thus to be deprecated.

This, however, runs into a problem. There's something else that's endogenous - support for inequality. Rightists who overlook the endogeneity of benefit fraud can therefore hardly complain when leftists say that inequality is wrong even though it is tolerated by the public. And, I suppose, vice versa.

Perhaps there's a good reason why the issue of endogenous behaviour is ignored. 

Comments

[Luis Enrique]

I don't think neoclassical economics asserts that preferences are exogenous, I think it's another assumption made to make life simple. I suppose neoclassical economists must claim that we still learn something useful from models that have fixed preferences.

I think it's also possible to overdo endogenous preferences. Economists might occupy one extreme (starting from the assumption of exogenous, fixed preference) but my impression is that others (left wing intellectuals?) start from the other extreme, where everything is socialised, we are all sheep manipulated by capitalism. If anything I prefer to err on the side of the economists.

(plus of course endogenous preferences are a reasonably active research field in mainstream econ)

[Deviation From The Mean]

"we are all sheep manipulated by capitalism"

Sheep is your word.

Re wants and desires. Under feudalism there wasn't a constant demand for commodities in all their wonderful variety, no one was demanding flat screen TV's. Even in capitalism no one really demands flat screen TV's prior to their invention (though there are exceptions), they get produced, speculatively, and it is hoped they find a demand. Therefore desire and want are driven by the system and people react. It is an innate feature of capitalism that an endless variety of products are made and then demanded (or not), competition etc leads to this. Then people become conditioned to this reality and start to ask questions like, I wonder if the product could do this?

Working in systems development I have noticed that the internet has allowed people to really think more in terms of improving products, and companies can get more feedback etc.

But I maintain that if we didn't have capitalism and moved to socialism what got produced would look very different. I.e. I reject the idea that capitalism just gives people what they want.

[Luis Enrique]

dftm

won't socialism produce new things in the hope that people might like them?

[Andrew]

Im the last century, didn't we have a 70 year or so comparison between what consumers could buy (want) in Moscow, versus New York or London?

[Luis Enrique]

See now I'm pretty sure that my preferences were fixed such that in 1990 if I was comparing my telly against a larger flat one, I'd have preferred a flat one. In this example I think a model with fixed preferences is better than one in which the emergence of flat screen tellies somehow altered my preferences

[Deviation From The Mean]

Flat tellies are better, who says otherwise?

Socialism will produce to meet human need, who says otherwise? And it will look to improve how products are made and how they function. But it's priorities will be different, ans will reflect more conscious human activity, rather than an alienation of human thought.

My point really was against those leftists who do not give capitalism enough credit for developing the productive forces, the preferences of consumers are driven by the system. The wonderful variety of goods and constant revolutionising of the means of production are features of capitalism.

Forget Moscow v New York, let us compare the rich parts of New York to the poorer parts of New York, let us compare the USA to Vietnam. The things the New Yorkers desire are made in places like Vietnam by the Vietnamese. If everyone consumed at the rate of the average American we would need 3 planet Earth's, so some scientific studies have claimed. So even a cursory contemplation about that question raises a whole variety of related issues, and is never as simplistic as suggested by Andrew. But people like Andrew don't want to know about these deeper issues.

My point was also that capitalism doesn't reflect thoughtful, conscious human needs but is a particular set of wants based on the nature of capitalism. So in capitalism you get a huge amount of waste, you get production for productions sake. You get speculation. But the challenge for the left is how do you envisage a socialist market working. It is an unresolved problem in my opinion. But the iniquities of the capitalist market are things the apologists for capitalism do not want to address or acknowledge.