How Are Preferences Revealed?
Revealed preferencesare tastes that rationalize an economic agent's observed actions.Normative preferencesrepresent the agent's actual interests. It sometimes makes sense to assume thatrevealed preferencesare identical tonormative 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 preferenceswithoutequating revealed and normative preferences. We illustrate these issues with evidence from savings and investment outcomes.
Harvard University.
John
J
Beshears
Yale University and NBER.
James J
JJ
Choi
Harvard University and NBER.
David
D
Laibson
Harvard University and NBER.
Brigitte C
BC
Madrian