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In
psychology Psychology is the science, scientific study of mind and behavior. Psychology includes the study of consciousness, conscious and Unconscious mind, unconscious phenomena, including feelings and thoughts. It is an academic discipline of immens ...
,
economics Economics () is the social science that studies the production, distribution, and consumption of goods and services. Economics focuses on the behaviour and interactions of economic agents and how economies work. Microeconomics anal ...
and
philosophy Philosophy (from , ) is the systematized study of general and fundamental questions, such as those about existence, reason, knowledge, values, mind, and language. Such questions are often posed as problems to be studied or resolved. ...
, preference is a technical term usually used in relation to choosing between alternatives. For example, someone prefers A over B if they would rather choose A than B. Preferences are central to decision theory because of this relation to behavior. Some methods such as Ordinal Priority Approach use preference relation for decision-making. As connative states, they are closely related to desires. The difference between the two is that desires are directed at one object while preferences concern a comparison between two alternatives, of which one is preferred to the other. In
insolvency In accounting, insolvency is the state of being unable to pay the debts, by a person or company ( debtor), at maturity; those in a state of insolvency are said to be ''insolvent''. There are two forms: cash-flow insolvency and balance-shee ...
, the term is used to determine which outstanding obligation the insolvent party has to settle first.


Psychology

In
psychology Psychology is the science, scientific study of mind and behavior. Psychology includes the study of consciousness, conscious and Unconscious mind, unconscious phenomena, including feelings and thoughts. It is an academic discipline of immens ...
, preferences refer to an individual's attitude towards a set of objects, typically reflected in an explicit decision-making process (Lichtenstein & Slovic, 2006). The term is also used to mean evaluative judgment in the sense of liking or disliking an object (e.g., Scherer, 2005) which is the most typical definition employed in psychology. However, it does not mean that a preference is necessarily stable over time. Preference can be notably modified by decision-making processes, such as
choices A choice is the range of different things from which a being can choose. The arrival at a choice may incorporate motivators and models. For example, a traveler might choose a route for a journey based on the preference of arriving at a give ...
(Brehm, 1956; Sharot, De Martino, & Dolan, 2009), even unconsciously (see Coppin, Delplanque, Cayeux, Porcherot, & Sander, 2010). Consequently, preference can be affected by a person's surroundings and upbringing in terms of geographical location, cultural background, religious beliefs, and education. These factors are found to affect preference as repeated exposure to a certain idea or concept correlates with a positive preference.


Economics

In
economics Economics () is the social science that studies the production, distribution, and consumption of goods and services. Economics focuses on the behaviour and interactions of economic agents and how economies work. Microeconomics anal ...
and other
social science Social science is one of the branches of science, devoted to the study of societies and the relationships among individuals within those societies. The term was formerly used to refer to the field of sociology, the original "science of s ...
s, ''preference'' refers to the set of assumptions related to ordering some alternatives, based on the degree of
happiness Happiness, in the context of mental or emotional states, is positive or pleasant emotions ranging from contentment to intense joy. Other forms include life satisfaction, well-being, subjective well-being, flourishing and eudaimonia. ...
, satisfaction, gratification, morality, enjoyment, or
utility As a topic of economics, utility is used to model worth or value. Its usage has evolved significantly over time. The term was introduced initially as a measure of pleasure or happiness as part of the theory of utilitarianism by moral philosophe ...
they provide. The concept of preferences is used in post-
World War II World War II or the Second World War, often abbreviated as WWII or WW2, was a world war that lasted from 1939 to 1945. It involved the World War II by country, vast majority of the world's countries—including all of the great power ...
neoclassical economics Neoclassical economics is an approach to economics in which the production, consumption and valuation (pricing) of goods and services are observed as driven by the supply and demand model. According to this line of thought, the value of a good ...
to provide observable evidence in relation to people’s actions. These actions can be described by
Rational Choice Theory Rational choice theory refers to a set of guidelines that help understand economic and social behaviour. The theory originated in the eighteenth century and can be traced back to political economist and philosopher, Adam Smith. The theory postula ...
, where individuals make decisions based on rational preferences which are aligned with their self-interests in order to achieve an optimal outcome. For a preference to be rational, it must satisfy the axioms of transitivity and completeness. The first axiom of transitivity refers to consistency between preferences, such that if x is preferred to y and y is preferred to z, then x has to be preferred to z. The second axiom of completeness describes that a relationship must exist between two options, such that x must be preferred to y or y must be preferred to x. For example, if I prefer sugar to honey and honey to sweetener then I must prefer sugar to sweetener to satisfy transitivity and I must have a preference between the items to satisfy completeness. Under the axiom of completeness, an individual cannot lack a preference between any two options. If preferences are both transitive and complete, the relationship between preference can be described by a
utility function As a topic of economics, utility is used to model worth or value. Its usage has evolved significantly over time. The term was introduced initially as a measure of pleasure or happiness as part of the theory of utilitarianism by moral philosoph ...
. This is because the axioms allow for preferences to be ordered into one equivalent ordering with no preference cycles. Maximising utility does not imply maximise happiness, rather it is an optimisation of the available options based on an individual’s preferences. The so-called Expected Utility Theory (EUT), which was introduced by
John von Neumann John von Neumann (; hu, Neumann János Lajos, ; December 28, 1903 – February 8, 1957) was a Hungarian-American mathematician, physicist, computer scientist, engineer and polymath. He was regarded as having perhaps the widest c ...
and Oskar Morgenstern in 1944, explains that so long as an agent's preferences over risky options follow a set of
axiom An axiom, postulate, or assumption is a statement that is taken to be true, to serve as a premise or starting point for further reasoning and arguments. The word comes from the Ancient Greek word (), meaning 'that which is thought worthy or ...
s, then he is maximizing the expected value of a utility function. The mathematical foundations of most common types of preferences — that are representable by quadratic or additive functions — laid down by
Gérard Debreu Gérard Debreu (; 4 July 1921 – 31 December 2004) was a French-born economist and mathematician. Best known as a professor of economics at the University of California, Berkeley, where he began work in 1962, he won the 1983 Nobel Memorial Prize ...
enabled Andranik Tangian to develop methods for their elicitation. In particular, additive and quadratic preference functions in n variables can be constructed from interviews, where questions are aimed at tracing totally n 2D-indifference curves in n - 1 coordinate planes without referring to cardinal utility estimates. Empirical evidence has shown that the usage of rational preferences (and
Rational Choice Theory Rational choice theory refers to a set of guidelines that help understand economic and social behaviour. The theory originated in the eighteenth century and can be traced back to political economist and philosopher, Adam Smith. The theory postula ...
) does not always accurately predict human behaviour because it makes unrealistic assumptions. In response to this,
neoclassical economists Neoclassical economics is an approach to economics in which the production, consumption and valuation (pricing) of goods and services are observed as driven by the supply and demand model. According to this line of thought, the value of a good ...
argue that it provides a normative model for people to adjust and optimise their actions. Behavioural economics describes an alternative approach to predicting human behaviour by using psychological theory which explores deviations from rational preferences and the standard economic model. It also recognises that rational preferences and choices are limited by heuristics and
biases Bias is a disproportionate weight ''in favor of'' or ''against'' an idea or thing, usually in a way that is closed-minded, prejudicial, or unfair. Biases can be innate or learned. People may develop biases for or against an individual, a group, ...
. Heuristics are rules of thumb such as elimination by aspects which are used to make decisions rather than maximising the
utility function As a topic of economics, utility is used to model worth or value. Its usage has evolved significantly over time. The term was introduced initially as a measure of pleasure or happiness as part of the theory of utilitarianism by moral philosoph ...
. Economic
biases Bias is a disproportionate weight ''in favor of'' or ''against'' an idea or thing, usually in a way that is closed-minded, prejudicial, or unfair. Biases can be innate or learned. People may develop biases for or against an individual, a group, ...
such as reference points and loss aversion also violate the assumption of rational preferences by causing individuals to act irrationally.


Relation to desires

''Preferences'' and '' desires'' are two closely related notions: they are both conative states that determine our behavior. The difference between the two is that desires are directed at one object while preferences concern a comparison between two alternatives, of which one is preferred to the other. The focus on preferences instead of desires is very common in the field of decision theory. It has been argued that desire is the more fundamental notion and that preferences are to be defined in terms of desires. For this to work, desire has to be understood as involving a degree or intensity. Given this assumption, a preference can be defined as a comparison of two desires. That Nadia prefers tea over coffee, for example, just means that her desire for tea is stronger than her desire for coffee. One argument for this approach is due to considerations of parsimony: a great number of preferences can be derived from a very small number of desires. One objection to this theory is that our introspective access is much more immediate in cases of preferences than in cases of desires. So it is usually much easier for us to know which of two options we prefer than to know the degree with which we desire a particular object. This consideration has been used to suggest that maybe preference, and not desire, is the more fundamental notion.


Insolvency

In
Insolvency In accounting, insolvency is the state of being unable to pay the debts, by a person or company ( debtor), at maturity; those in a state of insolvency are said to be ''insolvent''. There are two forms: cash-flow insolvency and balance-shee ...
, the term can be used to describe when a company pays a specific creditor or group of creditors. From doing this, that creditor(s) is made better off, than other creditors. After paying the 'preferred creditor', the company seeks to go into formal insolvency like an administration or liquidation. There must be a desire to make the creditor better off, for them to be a preference. If the preference is proven, legal action can occur. It is a wrongful act of trading. Disqualification is a risk. Preference arises within the context of the principle maintaining that one of the main objectives in the winding up of an insolvent company is to ensure the equal treatment of creditors. The rules on preferences allow paying up their creditors as insolvency looms, but that it must prove that the transaction is a result of ordinary commercial considerations. Also, under the English Insolvency Act 1986, if a creditor was proven to have forced the company to pay, the resulting payment would not be considered a preference since it would not constitute unfairness. It is the decision to give a preference, rather than the giving of the preference pursuant to that decision, which must be influenced by the desire to produce the effect of the preference. For these purposes, therefore, the relevant time is the date of the decision, not the date of giving the preference.


See also

*
Motivation Motivation is the reason for which humans and other animals initiate, continue, or terminate a behavior at a given time. Motivational states are commonly understood as forces acting within the agent that create a disposition to engage in goal-dire ...
* Ordinal Priority Approach * Preference-based planning (in artificial intelligence) *
Preference revelation In public choice theory, preference revelation (also preference revelation problem) is an area of study concerned with ascertaining the public's demand for public goods. According to some economists, if government planners do not have "full knowle ...
* Choice * Pairwise comparison


References


General

*Brehm, J.W. (1956). Post-decision changes in desirability of choice alternatives. Journal of Abnormal and Social Psychology, 52, 384-389. *Coppin, G., Delplanque, S., Cayeux, I., Porcherot, C., & Sander, D. (2010). I'm no longer torn after choice: How explicit choices can implicitly shape preferences for odors. Psychological Science, 21, 489-493. *Lichtenstein, S., & Slovic, P. (2006). The construction of preference. New York: Cambridge University Press. *Scherer, K.R. (2005). What are emotions? And how can they be measured? Social Science Information, 44, 695-729. *Sharot, T., De Martino, B., & Dolan, R.J. (2009). How choice reveals and shapes expected hedonic outcome. Journal of Neuroscience, 29, 3760-3765.


External links


Stanford Encyclopedia of Philosophy article on 'Preferences'
* (white paper from International Communications Research) {{Authority control Psychological attitude Utility Free will Decision-making