The market for preferences

Authors: Peter E. Earl; Jason Potts

Source: Cambridge Journal of Economics, Volume 28, Number 4, July 2004 , pp. 619-633(15)

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Abstract:

Learning processes are widely held to be the mechanism by which boundedly rational agents adapt to environmental changes. We argue that this same outcome might also be achieved by a different mechanism, namely specialisation and the division of knowledge, which we here extend to the consumer side of the economy. We distinguish between high-level preferences and low-level preferences as nested systems of rules used to solve particular choice problems. We argue that agents, while sovereign in high-level preferences, may often find it expedient to acquire, in a pseudo-market, the low-level preferences in order to make good choices when purchasing complex commodities about which they have little or no experience. A market for preferences arises when environmental complexity overwhelms learning possibilities and leads agents to make use of other people's specialised knowledge and decision rules.

Keywords: Preferences; Learning; Knowledge; Bounded rationality; Choice theory; Consumer behaviour; Evolutionary economics

Document Type: Research article

DOI: http://dx.doi.org/10.1093/cje/beh020

Publication date: 2004-07-01

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The Cambridge Journal of Economics, founded in 1977 in the traditions of Marx, Keynes, Kalecki, Joan Robinson and Kaldor, provides a forum for theoretical, applied, policy and methodological research into social and economic issues.