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Journal of Economic Methodology

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The concepts of choice and preference

in economics
a
Prasanta K. Pattanaik
a
University of California , Riverside , CA , USA
Published online: 08 Jul 2013.

To cite this article: Prasanta K. Pattanaik (2013) The concepts of choice and preference in
economics, Journal of Economic Methodology, 20:2, 215-218, DOI: 10.1080/1350178X.2013.804680

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 Journal of Economic Methodology, 2013
Vol. 20, No. 2, 215–218, http://dx.doi.org/10.1080/1350178X.2013.804680

The concepts of choice and preference in economics

Prasanta K. Pattanaik*

University of California, Riverside, CA, USA

The preferences, choice and well-being of an individual constitute some of the most
fundamental concepts in economic theory. While the theories that economists have
constructed are extensive, varied and impressive in many ways, it is perhaps not usual for
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economists to stand back and consciously examine the exact content of these concepts
which have played such a central role in their subject. In many earlier contributions,
Daniel M. Hausman has explored in great depth the conceptual issues that arise in the
context of what economists do with these basic concepts. Hausman (2012) has now
provided a very valuable and remarkably lucid exposition of his thoughts on these matters.
The book has three distinct parts. The first part deals with the notion of preference, its
different possible interpretations and their limitations, and the link between preference and
choice. The second part is about the relationship between an individual’s preferences and
his/her welfare. The third part deals with how preferences are formed and psychological
theories of choice. The range of issues covered in the book is large. Given the limitations
of space, in this essay I shall confine myself to a few of the main themes in the first part of
the book, which discusses the economists’ treatment of the notions of preference and
choice in positive economics as distinct from normative economics.
In the first part of the book, Hausman starts by listing some of the ways in which the
term ‘preference’ has been interpreted (enjoyment comparisons, comparative evaluations,
favoring and choice ranking). He feels that economists usually use the term preference to
indicate total subjective comparative evaluation, that is, total evaluation of different
options ‘with respect to everything that matters for the individual’, and that they are right
to do so since it is sensible to model choices as being induced by the individual’s beliefs
and preferences in this sense. In general, economists will not have any great difficulty with
Hausman’s recommendation to use this specific interpretation of preference. But it may be
worth noting two points. First, the individual may not have a single preference ordering
over the options based on a total subjective comparative evaluation of all that matters for
the individual. Depending on the context, the preference ordering may be different: though
the set of things that matter for the individual may remain the same, the relative weights
that the agent attaches to the different things that matter for him/her may change when the
context changes. The individual’s ranking of eating a fruit and eating a large slice of
chocolate cake may be different depending on whether he/she is thinking carefully about
the two options in the quiet of his/her home or whether he/she is expressing his/her
preferences when dining with friends in a restaurant. Second, for some purposes, it may be
convenient to be able to talk about different types of preferences, such as an individual’s
‘ethical preferences’ based exclusively on the individual’s moral evaluation of the options
or his/her ‘self-interested preferences’. Since these terms and the concepts that they
represent have been widely used in the literature, it is not clear that it would be either
possible or desirable to rule out the use of these terms.

*Email: prasanta.pattanaik@ucr.edu

q 2013 Taylor & Francis

 216 P. Pattanaik

Hausman rejects several definitions of the notion of preferences. One of them is the so-
called choice-based definition that he attributes to the theory of revealed preference.
Hausman regards as problematic the claim that ‘preferences in economics can be defined
in terms of choices, as in revealed preference theory’. Revealed preference theorists talk
about choices being rationalizable in terms of a preference ordering (or, more generally, in
terms of a binary weak preference relation); they talk about ‘recovering’ the preferences
that can induce the agent’s choices and they also talk about an agent making choices as if
he/she had a preference ordering and was choosing on the basis of that preference
ordering. But it is far from clear that, in general, they define preference in terms of choice
or they say that ‘A strictly prefers x to y’ means that ‘given the choice between x and y, A
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chooses x and rejects y’. Hausman (2012, p. 24) attributes to Samuelson (1938) and Little
(1949) the position that ‘economists can define preferences in terms of actual choices’
(emphasis added). Re-reading Samuelson (1938), I do not find any evidence there to
suggest that Samuelson maintains that preferences can be defined in terms of choice. The
same is the case with Little (1949). Referring to the multiple senses in which the term
‘preference’ is ordinarily used, Little (1949, pp. 91 – 92) observes, ‘The verb “to prefer”
can either mean “to choose” or “to like better”, and these two senses are frequently
confused in the economic literature’1 and, throughout his paper, Little sharply
distinguishes what he calls ‘objective preferences or choices’ (the first use of ‘to prefer’
identified by him) from the subjective notion of preference (the second use identified by
him). This can hardly be construed as saying that preference (in the subjective sense) can
be defined in terms of choice. That Samuelson (1938) and Little (1949) do not consider the
possibility of defining preference in terms of choice should not come as a surprise, since
Samuelson believed that the theory of consumer’s behavior could be (and should be)
‘freed from any vestigial traces of the utility concept’ (Samuelson 1938, p. 71) and Little
sought to reconstruct the theory ‘without reference to anything other than behaviour’
(Little 1949, p. 97).
Hausman’s objections to a definition of preference in terms of choice are, however,
illuminating and important even when one is not defining the subjective concept of
preference in terms of choice but is viewing choice as evidence of preference. Hausman
rightly points out that an agent’s beliefs as well as his/her preferences guide his/her
choices and that economists can go seriously wrong in inferring an agent’s preferences
from his/her choice if they are unaware of the agent’s beliefs. Hausman gives examples to
show why the choice of x over y cannot necessarily be used to conclude that the agent
prefers x to y. Consider his example based on the story of Romeo and Juliet. Romeo kills
himself thinking that Juliet is dead, but the rest of the world, including the economist
observing Romeo’s choices, knows that Juliet is really alive though she looks dead.
Hausman (2012, p. 28) observe:
If choice defines preference, then Romeo prefers death to eloping with Juliet . . . it is perfectly
possible to prefer x to y yet to choose y from the set {x, y} because, like Romeo, one
mistakenly believes that one is choosing between y and something other than x.
Hausman’s point has significance far beyond the world of Shakespearean plays. Consider a
person, A, who decides to download a cheap software, which, it is claimed, will
dramatically enhance the efficiency of his/her computer. Experts, including the economist
studying A’s behavior, know that the claim made for the software is completely fraudulent
and that the software carries a dangerous virus, but A does not know this and downloads it
into his/her computer. If, given A’s decision, the economist infers that A prefers to pay to
 Journal of Economic Methodology 217

download a virus into his/her computer, it will be as absurd as the inference that Romeo
preferred dying to eloping with Juliet.
Given Romeo’s decision to commit suicide, if the external observer of his behavior
says that Romeo preferred to die rather than to live, there would not be anything absurd
about the statement, though it would not give us a particularly useful or revealing piece of
additional information. But, when the observer of Romeo’s choice specifies Romeo’s
options as eloping with Juliet and death, there is a difference between how the observer
specifies Romeo’s options and how Romeo himself sees his options. It is this difference
which leads to problems with the observer’s inference of Romeo’s preferences from the
observer’s conception of Romeo’s options and choice. For the sake of brevity, I shall refer
to the difference between the external observer’s conception of the agent’s options and
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choices and the agent’s own perception of his options and choices as the option
specification problem.
Several points may be noted here. First, not only can the option specification problem
lead the external observer of choices to draw wrong conclusions about the agent’s
preferences, but it can also cause an exactly analogous difficulty when one starts with the
agent’s preferences and seeks to predict the agent’s choices. Suppose we know Romeo’s
preferences: we know that he prefers eloping with Juliet to dying and that he prefers dying
to living without Juliet. But suppose, we do not know that Romeo sees his option of not
committing suicide as living without Juliet, and, therefore, we specify Romeo’s option of
not committing suicide as living and eloping with Juliet. In that case, our prediction of
Romeo’s action will go wrong just as the observer’s inference of Romeo’s preference goes
wrong in Hausman’s example.
Second, the difference between the agent’s beliefs and the beliefs of the observer of the
agent’s behavior may not be the only source of the option specification problem. The
option specification problem may also arise because the observer may not be aware of
certain concerns of the agent. This is illustrated by Sen’s (1993) well-known example
involving an individual’s choice of a fruit in a party. In Sen’s example, a person in a party
finds that there is only one fruit left in the fruit tray – an apple (x). Being a polite person, he
decides in favor of not having any fruit (y). Had there been another apple in the fruit tray,
he would have picked up the same apple that he did not choose when it was the only fruit
left. In the first choice situation, the agent views the choice of the apple as ‘eating the apple
and being impolite’, while, in the second choice situation, he views the choice of one of
two apples in the fruit tray as ‘eating the apple without being impolite’. If the external
observer does not make this distinction and treats the agent’s choice of the apple in both
cases as the choice of the same option, then the agent’s choices as specified by the external
observer would violate the familiar properties of ‘rational choice’ that economists
postulate for an agent. Further, though Sen (1993) did not discuss this, if the external
observer seeks to infer the agent’s preferences from the agent’s choices as seen by the
observer, he would conclude that the agent strictly prefers y to x (since he rejects x and
chooses y in the first situation) and also weakly prefers x to y (since he chooses x in the second
situation when y is available). These anomalies, however, disappear if the options are seen as
‘eating an apple without being impolite’, ‘eating an apple and being impolite’, etc.
Third, irrespective of whether economists want to model an agent’s choices by
introducing a preference ordering, imposing restrictions on it and then deriving
conclusions about the agent’s choices, or by introducing the agent’s choice function as the
primitive concept, imposing restrictions on the choice function and deriving other
properties of the choice function, there is no escape from the fact that economists have to
start by specifying the options that confront the agent. Even preference orderings need to
 218 P. Pattanaik

be defined over some set of options. In specifying the agent’s options, economists
implicitly assume that their specification coincides with the way in which the agent sees
the options, but, for different reasons including the one that Hausman discusses in his
Romeo – Juliet example, there is always the possibility that this implicit assumption may
not be valid. The more the external observer knows what the agent’s beliefs are and what
things matter for him, the less likely this possibility will be. This is perhaps the main
message that emerges from both Hausman’s example involving Romeo’s choice and Sen’s
(1993) example of the choice of an apple. I do not think that many economists would
disagree with the message, despite the fact that economists have occasionally made
statements which seem to be at odds with it.
I have commented on only a small part of Hausman’s book. It is a rich volume with
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incisive and subtle analysis of some of the most fundamental concepts in economics. Scholars
interested in the conceptual foundation of economics will find Hausman’s arguments
uniformly stimulating even if they do not always agree with Hausman’s conclusions.

Note
1. Cf. The Oxford dictionary and Thesaurus, American edition (1996), which lists ‘choose’ and
‘like better’ at the beginning of its list of meanings of ‘prefer’.

References
Hausman, D. M. (2012). Preference, Value, Choice, and Welfare. New York: Cambridge University
Press.
Little, I. M. D. (1949). A reformulation of the theory of consumer’s behavior. Oxford Economic
Papers (new series), 1, 90 –99.
Samuelson, P. A. (1938). A note on the pure theory of consumer’s behavior. Economica, 5, 61 – 71.
Sen, A. K. (1993). Internal consistency of choice. Econometrica, 61, 495– 521.
The Oxford dictionary and Thesaurus, American edition. (1996). New York: Oxford University
Press.