Professor Eldar Shafir: “Context, Cognition, and Flippant Preferences”

In traditional (micro)economics, the principle of “revealed preference” holds that the choices made by individuals reflect their true preferences, on which basis further principles such as “liberal neutrality” and “consumer sovereignty” are founded. Work in “behavioral economics” has documented many instances where basic assumptions of “well-ordered” preferences are falsified. In this talk, Princeton University Professor Eldar Shafir, provides a number of examples from the social and the cognitive sciences that provide further well-established illustrations of the problematic nature of the “revealed preference” assumption: 1. Context can influence judgments and choices in ways in which the individual is entirely unaware. 2. Individuals can come to “believe” things that are fundamentally false through repeated exposure, the basis of both consumer advertising and propaganda. 3. Similarly, repeated exposure to an object can lead the individual to “like” it more. 4. Individuals’ “construal” – their representation -- of the choices they face can be heavily influenced by context. 5. Due to shifting context and construal, Individuals can make choices that they are bound later to regret (and, to be clear, these are not cases of good choices with unfortunate outcomes) Can a model of evolved Homo economicus be constructed and used by economists that captures these and other real-life aspects of individual choice? Shafir thinks it’s a real challenge. About the Symposium: David M. Kreps Symposia comprise a series of symposia on topics of broad interest to the faculty of the Graduate School of Business. The series was created through the generous support of friends and alumni of the GSB, to honor the career of Prof. Kreps. This symposium was titled "Homo economicus, evolving." In orthodox economic models, the individual agent, Homo economicus, is self-interested and rational, with fixed preferences and perfect foresight. However, economists are increasingly modeling individuals who are generous to others, who have preferences that depend on the context and that change, and who have cognitive limitations. This evolving vision of Homo economicus has profound implications for what we learn from…