The idea of constructed preferences contends that subjective value is something we create as needed. This idea hasn’t always been well accepted in economics but it is consistent with what psychologists now understand about how memory works.
In today’s article we are going will explore how people create and compare the subjective values of different options in order to make a decision. We will consider two big ideas constructed preferences and a common currency. The idea of constructed preferences contends that subjective value is something we create as needed. This idea hasn’t always been well accepted in economics but it is consistent with what psychologists now know about how memory works.
Let’s explore this concept and its implications for decision-making. To understand with this idea means and was not it’s worth thinking in terms of analogy. Suppose you’re trying to sell your car, you take the car to a large used car lot on the edge of town one that’s part of a national chain, the salesperson writes down the make and model of your car looks at the current mileage, walks around the car to check for damage and then read the note from a mechanic giving your car a clean bill of health, then she goes to a computer types and that information and looks up the price.
To this company the value of your car is given by a listing in some database, if all the necessary information is available than that value can be looked up and it doesn’t change based on the time of day the mood of the salesperson, how you are dressed or any other subjective factor.
Value as a decision-making exercise
Now suppose that you would instead try to sell your car yourself through an online advertisement. An interested buyer comes to your house to see the car he walks around the car ask you about a scratch and a door, opens the hood to look at the engine and then steps back and just stares at the car, he looks at you will to the car again and then makes an offer.
To this buyer the value of the car wasn’t in some database ahead of time, it didn’t even exist into a met with you and saw the car. At that point he combined his own financial constraints, his judgment about the quality of the car and even his sense of your savvy as a negotiator all feeding into his offer. If he had been in a better mood or if your house wasn’t quite as nice then perhaps he would’ve offered more money.
In this case the value of the car wasn’t looked up it was constructed. Stepping away from this specific analogy the idea of constructed preferences can be applied to any decision situation, no matter how simple. This idea contends that we don’t necessarily have intrinsic preferences that determine our choices of different goods, say that an apple is worth more than a dollar. Instead we figure out what is important to us by working through the decision problem.
Memory as a reconstruction process
This idea has been heretical to some economists, they think that people have stable and consistent preferences and that people have enough sense of their own preferences that they can look them up as needed, but it is consistent with how cognitive scientists now think about memory.
Try to remember an event from the recent past, say eating breakfast earlier today. Perhaps you remember the place you were sitting, perhaps you remember the taste of the food the smell of her coffee, perhaps you remember what you were doing reading talking relaxing.
When we bring her memory of breakfast in mind it seems like we are reliving an event from the past as if we looked at the memory in some database and then pressed play on an internal movie. We now know that memories are accessed that way, memories aren’t looked up and process as integrated holes but are constructed from disparate elements at the time of retrieval.
What we think, still important
Different components of memories: sites, sound, smells aren’t even stored together in our brains. Instead they are stored in different parts of the brain according to what sort of information they contain and then only integrated when an associated memory is brought to mind.
When memories are brought to mind they are most flexible and likely to change. Our preferences are like our memories, they are often constructed at the moment of the decision they don’t use all possible information but emphasize what we think is most important in that moment and the very act of construction makes them susceptible to change.