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How are Preferences Revealed?

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  • John Beshears
  • James J. Choi
  • David Laibson
  • Brigitte C. Madrian

Abstract

Revealed preferences are tastes that rationalize an economic agent’s observed actions. Normative preferences represent the agent's actual interests. It sometimes makes sense to assume that revealed preferences are identical to normative preferences. But there are many cases where this assumption is violated. We identify five factors that increase the likelihood of a disparity between revealed preferences and normative preferences: passive choice, complexity, limited personal experience, third- party marketing, and intertemporal choice. We then discuss six approaches that jointly contribute to the identification of normative preferences: structural estimation, active decisions, asymptotic choice, aggregated revealed preferences, reported preferences, and informed preferences. Each of these approaches uses consumer behavior to infer some property of normative preferences without equating revealed and normative preferences. We illustrate these issues with evidence from savings and investment outcomes.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13976.

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Date of creation: May 2008
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Handle: RePEc:nbr:nberwo:13976

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Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. How Are Preferences Revealed?
    by Miguel in Simoleon Sense on 2010-09-14 22:12:38
  2. Rationality and Economics - Lecture 2
    by Liam Delaney in Geary Behaviour Centre on 2010-09-14 12:18:00
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Cited by:
  1. V. Smith & Eric Moore, 2010. "Behavioral Economics and Benefit Cost Analysis," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 46(2), pages 217-234, June.
  2. Berg, Nathan & Gigerenzer, Gerd, 2010. "As-if behavioral economics: Neoclassical economics in disguise?," MPRA Paper 26586, University Library of Munich, Germany.
  3. Johannes Binswanger & Daniel Schunk, 2009. "What is an Adequate Standard of Living during Retirement?," CESifo Working Paper Series 2893, CESifo Group Munich.
  4. Peter Kooreman & Henriëtte Prast, 2010. "What Does Behavioral Economics Mean for Policy? Challenges to Savings and Health Policies in the Netherlands," De Economist, Springer, vol. 158(2), pages 101-122, June.
  5. Egebark, Johan & Ekström, Mathias, 2011. "Like What You Like or Like What Others Like? Conformity and Peer Effects on Facebook," Working Paper Series 886, Research Institute of Industrial Economics.
  6. David Colander & Andrew Qi Lin Chong, 2009. "The Choice Architecture of Choice Architecture: Toward a Nonpaternalistic Nudge Policy," Middlebury College Working Paper Series 0916, Middlebury College, Department of Economics.
  7. Lunn, Pete, 2013. "Are Consumer Decision-Making Phenomena a Fourth Market Failure?," Papers WP455, Economic and Social Research Institute (ESRI).
  8. Jeffrey B. Liebman & Erzo F.P. Luttmer, 2011. "Would People Behave Differently If They Better Understood Social Security? Evidence From a Field Experiment," NBER Working Papers 17287, National Bureau of Economic Research, Inc.
  9. Ghosal, Sayantan & Dalton, Patricio, 2013. "Characterizing Behavioral Decisions with Choice Data," CAGE Online Working Paper Series 106, Competitive Advantage in the Global Economy (CAGE).
  10. Katherine L. Milkman & John Beshears & James J. Choi & David Laibson & Brigitte C. Madrian, 2011. "Using Implementation Intentions Prompts to Enhance Influenza Vaccination Rates," NBER Working Papers 17183, National Bureau of Economic Research, Inc.
  11. Holgar Müller & Eike Benjamin Kroll & Bodo Vogt, 2009. "Fact or Artifact Does the compromise effect occur when subjects face real consequences of their choices?," FEMM Working Papers 09009, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
  12. Marc Fleurbaey & Erik Schokkaert, 2012. "Behavioral Fair Social Choice," Working Papers 2012-012, Human Capital and Economic Opportunity Working Group.
  13. Jose-Luis Pinto-Prades & Jose-Maria Abellan-Perpiñan, 2011. "When normative and descriptive diverge: how to bridge the difference," Working Papers 11.06, Universidad Pablo de Olavide, Department of Economics.
  14. Fredrik Carlsson, 2010. "Design of Stated Preference Surveys: Is There More to Learn from Behavioral Economics?," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 46(2), pages 167-177, June.

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