The Problem With (Revealed) Preferences – Schelling vs. Varian

One of the most interesting aspects of economics, to me, is the model of humanity it puts forward and claims as (nearly, perhaps) universal. Homo economicus has both normative and positive aspects, depending on the particular author, model and time period. I am particularly interested in those claims that seem innocuous but actually elide much of the nuance of human behavior.

Consider the logic of “revealed preferences”, that is, the idea that you can infer a preference for A over B by observing a person choose A when he or she could have chosen B. According to Hal Varian’s Intermediate Microeconomics (which is, of course, my current pleasure reading…) the logic of revealed preferences goes like this:

When we talk of determining people’s preferences from observing their behavior, we have to assume that the preferences will remain unchanged while we observe the behavior. Over very long time spans, this is not very reasonable. But for the monthly or quarterly time spans that economists usually deal with, it seems unlikely that a particular consumer’s tastes would change radically.

This explanation seems, on the surface, quite reasonable – the economist admits that the model is limited in scope, but that those limits are acceptable given the kinds of models usually worked with. But this assumption is really an empirical one – do preferences change only on a scale of months or years, or are they much more dynamic? Varian (along with, I would wager, most conventional textbooks) assumes the problem away. After all, it would be a strange sort of consumer whose preferences varied on a scale of hours or minutes, wouldn’t it? That hypothetical fickle consumer would be almost irrational.

Or maybe they’d be Nobel Prize winning economist Thomas Schelling*. In 1984, Schelling gave a lecture entitled, Self-command in practice, in policy and in a theory of rational choice. Schelling explores in that speech the prevalence of exactly the kind of preference Varian (and most typical treatments) assume away: inconsistent preferences over extremely short time periods. Indeed, Schelling speaks to the sorts of everyday preferences that are not only inconsistent but directly contradictory. The speech opens like this:

An increasingly familiar occurrence for obstetricians is being asked by patients to withhold anesthesia during delivery. The physician often proposes that a facemask be put beside the patient who may inhale nitrous oxide as she needs it. But some determined patients ask that no such opportunity be provided: if gas is available they will use it, and they want not to be able to.

Schelling goes from this example to discuss a range of phenomena that exhibit the trait he calls “anticipatory self-command”, meaning that a person acts strategically against their near future desires. Schelling uses his own attempts to quite smoking as another, more everyday example, of this: whenever he attempts to quit, he makes sure to tell his friends not to give him a cigarette if he asks for one. I believe we all experience similar decision making problems at various points in time, and of various magnitudes. We tell our friends not to call us to invite us out, because we must study for an exam. Etc. The key feature here is that my preferences now are not only inconsistent, but completely opposite, my preferences in the near future. If we allow this kind of preferences, and believe they are at all prevalent, then the logic of revealed preferences goes out the window.

So what conclusions do we draw from this? One that interests me is the realization that “revealed preferences” and their logic imply a more or less stable self, that evolves slowly through learning and minor adjustment. Even the economists’ model of change is one of marginal decision-making and updating, not radical shifts. Varian seems to understand the social world as smooth and differentiable. I don’t buy it, and I don’t like Schelling does either. Human experience is too lumpy, and too heterogenous on a moment to moment basis, to justify that assumption of stability.

The question then becomes, if we reject this too-stable conceptualization of the self, what’s left? How do we proceed, knowing that the things we want now may not be the things we want a few minutes from now? Schelling begins to theorize the question, for those cases when the shifts are apparent to yourself and you are capable of acting in an anticipatory way. But is that the limit of this inconsistent preferences? I don’t think so.

* Astute readers may have already guessed that Schelling is my favorite economist. If not, I will just out myself here. Strategy of Conflict is a brilliant work of social theory, and Micromotives and Macrobehavior is almost equally good. Perhaps as I read more I will find another favorite, but so far, Schelling is my economist hero.

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2 Comments

  1. Jim Johnson

     /  April 25, 2008

    An interesting post. I often tell graduate students that The Strategy of Conflict is one of the two best books of social science written since WWII. I als tell them the other, Geertz’s Interpretation of Cultures, is about the same topic.

  2. I just had the opportunity to re-read Geertz (along with a fabulous essay by Sewell on Geertz, here-ish) in a Philosophy of Social Science class with Daniel Little. I can see the connections, and would not disagree that both books are excellent. I’m not sure I can go as far as the two best, as I’m a big fan of Goffman’s two major works, which I would place in the same set and time period.