Preference

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In psychology, economics and philosophy, 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. 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, the term is used to determine which outstanding obligation the insolvent party has to settle first.

Psychology[edit]

In psychology, 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 (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.[1]

Economics[edit]

In economics and other social sciences, preference refers to the set of assumptions related to ordering some alternatives, based on the degree of happiness, satisfaction, gratification, morality, enjoyment, or utility they provide, a process which results in an optimal "choice" (whether real or imagined). Although economists are usually not interested in choices or preferences in themselves, they are interested in the theory of choice because it serves as a background for empirical demand analysis and as a basis for theories involving strategy.

The so-called Expected Utility Theory (EUT), which was introduced by John von Neumann and Oskar Morgenstern in 1944, explains that so long as an agent's preferences over risky options follow a set of axioms, then he is maximizing the expected value of a utility function.[2] This theory specifically identified four axioms that determine an individual's preference when selecting an alternative out of a series of choices that maximizes expected utility for him.[3][4] These include Completeness, Transitivity, Independence, and, Continuity.[5]

The mathematical foundations of most common types of preferences — that are representable by quadratic or additive functions — laid down by Gérard Debreu[6][7] enabled Andranik Tangian to develop methods for their elicitation. In particular, additive and quadratic preference functions in variables can be constructed from interviews, where questions are aimed at tracing totally 2D-indifference curves in coordinate planes without referring to cardinal utility estimates.[8][9]

Relation to desires[edit]

Preferences and desires are two closely related notions: they are both conative states that determine our behavior.[10] 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.[11][10] 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.[12][11][10] 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.[12] 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.[12][10] 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.[12]

Insolvency[edit]

In Insolvency, 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 a 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.[13] 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.[14] 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.[14] 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.[15]

See also[edit]

References[edit]

  1. ^ Zajonc, Robert B.; Markus, Hazel (1982-09-01). "Affective and Cognitive Factors in Preferences". Journal of Consumer Research. 9 (2): 123–131. doi:10.1086/208905. ISSN 0093-5301.
  2. ^ Teraji, Shinji (2018). The Cognitive Basis of Institutions: A Synthesis of Behavioral and Institutional Economics. London: Academic Press. p. 137. ISBN 9780128120231.
  3. ^ Kemtzian, Patrick (2012). Finance and Psychology – A never-ending love story?!: Behavioural Finance and its impact on the credit crunch in 2009. Berlin: GRIN Verlag. p. 5. ISBN 9783656270577.
  4. ^ Schoemaker, P. J. H. (2013). Experiments on Decisions under Risk: The Expected Utility Hypothesis. Dordrecht: Springer Science & Business Media. p. 13. ISBN 9789401750424.
  5. ^ Barbera, Salvador; Hammond, Peter; Seidl, Christian (2004). Handbook of Utility Theory: Volume 2: Extensions. Boston, MA: Kluwer Academic Publishers. p. 761. ISBN 1402077149.
  6. ^ Debreu, Gérard (1952). "Definite and semidefinite quadratic forms". Econometrica. 20 (2): 295–300. doi:10.2307/1907852.
  7. ^ Debreu, Gérard (1960). "Topological methods in cardinal utility theory". In Arrow, Kenneth (ed.). Mathematical Methods in the Social Sciences,1959. Stanford: Stanford University Press. pp. 16–26. doi:10.1016/S0377-2217(03)00413-2.
  8. ^ Tangian, Andranik (2002). "Constructing a quasi-concave quadratic objective function from interviewing a decision maker". European Journal of Operational Research. 141 (3): 608–640. doi:10.1016/S0377-2217(01)00185-0.
  9. ^ Tangian, Andranik (2004). "A model for ordinally constructing additive objective functions". European Journal of Operational Research. 159 (2): 476–512. doi:10.1016/S0377-2217(03)00413-2.
  10. ^ a b c d Schulz, Armin W. (2015). "Preferences Vs. Desires: Debating the Fundamental Structure of Conative States". Economics and Philosophy. 31 (2): 239–257. doi:10.1017/S0266267115000115.
  11. ^ a b Pettit, Philip. "Desire - Routledge Encyclopedia of Philosophy". www.rep.routledge.com. Retrieved 4 May 2021.
  12. ^ a b c d Schroeder, Tim (2020). "Desire". The Stanford Encyclopedia of Philosophy. Metaphysics Research Lab, Stanford University. Retrieved 3 May 2021.
  13. ^ Steven, Keith. "What Is A Preference Under The Insolvency Act 1986". Retrieved October 1, 2018.
  14. ^ a b Hannigan, Brenda (2015). Company Law, Fourth Edition. Oxford: Oxford University Press. p. 368. ISBN 9780198722861.
  15. ^ Gullifer, Louise; Payne, Jennifer (2015). Corporate Finance Law: Principles and Policy, Second Edition. Oxford: Bloomsbury Publishing. p. 111. ISBN 9781782259602.

General[edit]

  • 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[edit]