13 September 2020

Never argue against preferences.

I think that Hamlet is excruciating, The Lord of the Rings unreadable, Star Wars unwatchable. I like rainy days. I like Jazz. I can do without ice cream. In my opinion A Moveable Feast is the best book ever written, Breaking Bad the best television series ever made. I consider the Gettysburg Address unremarkable, democracy a bad idea, volunteering a selfish act. I prefer cats over dogs, and old cats over kittens. ...

You disagree?

So what? These are my preferences.

A preference is a favoured choice. The origin of a preference may be known or not. Values are preferences.

I think of preferences this way:

Imagine at birth you are given a preference basket or utility vault. It already contains several items, what Immanuel Kant's called a priori (e.g. a preference for breast milk over tuna oil, a preference for a warm blanket over cold cement). In the course of your life you will live through certain experiences and you will associate particular actions with particular outcomes. Actions whose outcomes produce pleasure will be added to your preferences, actions whose outcomes produce pain will not.

Note that it requires incentives to change your preferences. Think what it would take for you to change your favourite icecream flavour: Maybe if you found out that the one you prefer is also highly toxic? Or maybe if somebody paid you to switch to ox-tongue ice-cream. But would that really change the preference for flavour?

Example: Economics vs. Preference

When my wife and I met, she claimed that shopping at Costco saves her money.

I knew very little about Costco, the largest warehouse club chain in the world, but what I did know was that you had to buy most items in bulk and that the per item price was relatively low.

The problem was that at the time Kimberley had very little storage space in her apartment. Consequently, when she drove out into the netherworld of low industrial rent where Costco warehouses are often located, she bought very little (e.g. one gigantic bottle of ketchup, 20 cans of tuna, and 40 rolls of toilet paper).

I told her that if she factored in gasoline and time, shopping at Costco would probably turn out to be more expensive than shopping at a Safeway nearby.

"But I like shopping at Costco," she said.

End of argument. Although it was acceptable for me to question her economic argument, I certainly have no right to challenge her preference.

There is a twist though: Kimberley also likes shopping at small, locally-owned businesses, shops whose very existence is threatened by sub-urban, low-cost chain stores. Can I challenge an inconsistency?

Example: The Ultimatum Game

The Ultimatum Game is a tool used in experimental economics to study rational (vs. emotional) behaviour in human interactions under controlled conditions. Here are the rules:

  1. You are offered a large amount of money. There is only one condition: You have to share it with a stranger you will never meet. You have to decide how the money is split (e.g. 50/50, 60/40, 90/10), but you can only make a single offer to the stranger.
  2. Upon receiving your offer, the stranger can decide whether to accept or reject the offered split. If she accepts, you both will receive the agreed-upon share. If she rejects, neither she nor you will get anything.

Your first inclination is to offer 50/50, at least that is my hope. But upon reflection you realize that you could get away with a 60/40 split, for the responder would be a fool to forgo 40%. Or maybe even a 90/10 split? Also, you start thinking how you would react if you were not the proposer but the responder to the offer? (Note that more than half of the responders reject offers that are less than 80/20.)

There are four strategic personalities in this game. Which one describes you best?

  1. The American: Proposes an acceptable minimum and accepts a low offer.
  2. The Hypocrite: Proposes an acceptable minimum and only accepts 50/50.
  3. The Pushover: Proposes 50/50 and accepts a low offer.
  4. The Englishman: Proposes 50/50 and only accepts 50/50.

After many years of presenting this question to students, I found that most undergraduate students are Pushovers and a few are Americans. Less than 4% are Englishman. (I did have the occasional Hypocrite in the class, but I suspect that they did not understand the game.)

I also led discussions where one strategic personality should convince another to switch sides. Never was this done successfully.