For the past few weeks, I’ve been involved in an email exchange about the methodological differences between the Austrian School and the Chicago School. The correspondence revealed some surprising misunderstandings about a key Austrian point, showing a preference, which I hope to address in this week’s article, as well as some of the misunderstandings about it.
Proven preferences are best illustrated in Murray Rothbard’s paper “Towards a Reconstruction of Utility and Welfare Economics” (1956). Essentially, the doctrine is like this. When you make a choice, it’s usually one of several options. A choice is an action that indicates or reveals that your chosen option or preference ranks higher than competing options.AS Rothbard put it,
Human behavior is the use of means to achieve preferred ends. This behavior is in stark contrast to the observed behavior of stones and planets, as it suggests the actor’s purpose. Action means choosing among alternatives. People have means or resources that can be used to achieve various ends; these resources may be time, money, labor, land, capital goods, etc. He uses these resources for his favorite ends. From his behavior, we can infer that he acts to satisfy his most valued desire or preference.
the concept of show preference That’s it: actual choices reveal or reveal a person’s preferences; that is, his preferences can be inferred from what he chooses in action. Therefore, if a person chooses to spend an hour at a concert rather than a movie, we infer that the former is preferred, or ranks higher on his value scale. Likewise, if a person spends $5 on a shirt, we infer that he would prefer to buy the shirt over any other use he can find with the money. This concept of preference, rooted in practical choices, forms the cornerstone of the logical structure of economic analysis, especially utility and welfare analysis.
When we’re talking about “preferences” or “options” here, we’re referring to the alternatives that the actor considers when deciding what to do. We are not assuming that these preferences remain the same for a considerable period of time, let alone that the actor has “in his mind” a list of all possible actions he can take in all possible worlds, and this list is for all The possible world also remains the same. For a long time. Because we don’t assume these things, we don’t assume “transitivity of preferences” either. If you like A to B, B to C, A to C, then your preferences are transitive; but if your preferences are A over B, B over C, and C over A, they are intransitive of. Many people consider intransitive preference unreasonable, for reasons we won’t discuss here.
For Austrians, this question does not arise because we only care about what someone chooses at a particular time. If the actor now has to choose between A and B, we do not assume that he considers how to choose when other options are involved, nor do we assume that his preference for A remains the same.As Rothbard puts it, “The main mistake here is to assume that the preference scale remains constant over time. There is no reason to make such an assumption. All we can say is that an action, at a particular point in time, reveals Part of the Men’s Preference Scale then. There is no reason to assume it stays the same from one point in time to another. “As Rothbard pointed out, there is a difference between constancy and consistency, the former not being a requirement of reason.
[C]immediacy and consistency are two completely different things. Consistency means that a person maintains a transitive rank order on his preference scale (if A is better than B, B is better than C, then A is better than C). However, the explicit preference program is based less on this assumption than on an assumption. constant – A person maintains the same scale of value over time. While the former might be called irrational, there’s certainly nothing unreasonable about someone’s scale of value changing over time. Therefore, no valid theory can be built on the assumption of constancy.
One participant in the email exchange raised this objection:
it [demonstrated preference] most exposed his higher Preference, his preference between two options, he is free to choose…. Consider a serious person who is upset about other people’s consumption of pornography.In a free market society, he has no option to ban it, even if his Highest Preference could be a free market plus a ban on porn. If there were only two other people in the society, he could offer to pay them to agree not to consume pornography, but in a society where transaction costs are in the millions plus public interest issues – from the perspective of all others , the ban is a public interest seriousness – making it impractical.
The mistake here is that the displayed preference involves only one face-to-face actor choice. It has nothing to do with how he ranks possible states of affairs. In a sense, I “prefer” a world where everyone has the right view (my view, of course) on how society should be organized, but this preference has nothing to do with Austrian economics.
Another comment on performance preference is not intended to undermine it directly, but to suggest that the doctrine carries baggage that is not welcome by the Austrians. The Austrians opposed logical positivism, but, say the commenter,
[t]This is actually a bit like logical positivism in Austrian economics. I mean the idea that interpersonal utility comparisons cannot be made, and the more basic idea that “preference” must mean “revealed preference”. This is reminiscent of the positivist view that all meaningful statements must be tested by sensory observation. Good rationalists reject this assumption.
Maybe they will, but “shown preference”, as the Austrians use this concept, means that the choice reveals the chooser’s highest preference. This is not a claim about what “preference” means.
It must be said that this objection did not “show” how much he knew about Austrian economics. Anyway, it’s a good thing to have. As WVO Quine puts it, “Every knock on the door is a lift.