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Construction Of Preferences

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  • GHIURCÄ‚ Camelia

Abstract

Standard economic theory suggests that people's preferences are revealed by their behavior. However, behavioral economics states that often preferences are constructed mainly because of the limited rationality people have. This paper illustrates the behavioral theory of decision making focusing on judgement under certainty and decision-making under uncertainty. The existence of the phenomenon of preference reversal together with mental accounting and the other four effects - endowment, anchoring, decoy and framing - presented above suggests the discrepancy between the standard model of choice under certainty and what usually happens in practice and certified the fact that in real world preferences are not revealed, but constructed.

Suggested Citation

  • GHIURCÄ‚ Camelia, 2020. "Construction Of Preferences," Revista Economica, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 72(1), pages 65-75, April.
    • Handle: RePEc:blg:reveco:v:72:y:2020:i:1:p:65-75
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    References listed on IDEAS

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    1. Dan Ariely & George Loewenstein & Drazen Prelec, 2003. ""Coherent Arbitrariness": Stable Demand Curves Without Stable Preferences," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 118(1), pages 73-106.
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    3. Knetsch, Jack L, 1989. "The Endowment Effect and Evidence of Nonreversible Indifference Curves," American Economic Review, American Economic Association, vol. 79(5), pages 1277-1284, December.
    4. Hausman,Daniel M., 2012. "Preference, Value, Choice, and Welfare," Cambridge Books, Cambridge University Press, number 9781107695122, October.
    5. Hausman,Daniel M., 2012. "Preference, Value, Choice, and Welfare," Cambridge Books, Cambridge University Press, number 9781107015432, October.
    6. James G. March, 1978. "Bounded Rationality, Ambiguity, and the Engineering of Choice," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 587-608, Autumn.
    7. Tversky, Amos & Thaler, Richard H, 1990. "Anomalies: Preference Reversals," Journal of Economic Perspectives, American Economic Association, vol. 4(2), pages 201-211, Spring.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Behavioural Economics; Preference Construction; Preference Reversal; Framing Effects; Mental Accounting.;
    All these keywords.

    JEL classification:

    • B2 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925
    • B21 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Microeconomics
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General

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