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Concept
Preference (economics)
Summary
In economics and other social sciences, preference refers to the order in which an agent ranks alternatives based on their relative utility. The process results in an "optimal choice" (whether real or theoretical). Preferences are evaluations and concern matter of value, typically in relation to practical reasoning. An individual's preferences are determined purely by a person's tastes as opposed to the good's prices, personal income, and the availability of goods. However, people are still expected to act in their best (rational) interest. In this context, rationality would dictate that an individual will select the option that maximizes self-interest when given a choice. Moreover, in every set of alternatives, preferences arise.
The concept of preference plays a key role in many disciplines, including moral philosophy and decision theory. The logical properties that preferences possess also have major effects on rational choice theory, which in turn affects all modern economic topics.
Using the scientific method, social scientists aim to model how people make practical decisions in order to explain the causal underpinnings of human behaviour or to predict future behaviours. Although economists are not typically interested in the specific causes of a person's preferences, they are interested in the theory of choice because it gives a background to empirical demand analysis.
Stability of preference is a deep assumption behind most economic models. Gary Becker drew attention to this with his remark that "the combined assumptions of maximizing behavior, market equilibrium, and stable preferences, used relentlessly and unflinchingly, form the heart of the economic approach as it is." More complex conditions of adaptive preference were explored by Carl Christian von Weizsäcker in his paper "The Welfare Economics of Adaptive Preferences" (2005), while remarking that. Traditional neoclassical economics has worked with the assumption that the preferences of agents in the economy are fixed.
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