Our Malleable Preferences: Part 1

“When a man is tired of London, he is tired of life …” – Samuel Johnson

I grew up in modest circumstances. When I was 10, having a piece of chocolate was a big thing. I imagined a future in which I would be able to afford as many chocolates as I wanted. Remarkably, that day has arrived. But I seldom eat chocolate now, save for dark chocolate in the (possibly mistaken) belief that it is helping my heart. Or sometimes I will indulge in an extreme chocolate concoction at a fancy restaurant, but, day-to-day, I do not consume as I had imagined I would when I was 10.

Of course, this story is trivial. All of us undergo similar transformations. We do not want the same things at 20 as at 30 or 50… or 80. We call this life.

But Nevinomics believes that the malleability of our preferences raises some  profound questions for how we approach public policy and how we maximize Flourishing, questions that are almost all left unanswered.

Here are just 4 (well 5) of them:

1. Should we care about the malleability of preferences?
2. Are certain preferences more conducive to Flourishing than others?
3. Does Flourishing require that an individual have (some) control over how preferences change over time? How can this be achieved?
4. Should the state through public policy – in its attempt to maximize Flourishing – actively try to change (manipulate?) its population’s preferences?

Nevinomics believes the answers to these questions are yes, in some cases, yes, with difficulty, and maybe. In this article, we will only get to question 1. Here we go.

Delving into the origins of preferences takes us into uncomfortable territory, indeed. Orthodox economics takes preferences as fixed and something to be maximized (whatever that means; in Nevin, Chapter 4, I attempted to demolish this superfluous concept that filled, as they say, a much needed gap in the literature). In this tidy world, policy makers do not need to worry about the dynamic trajectory of preferences because preferences just are. Where they came from and where they are going (if anywhere) are not important questions.

Unfortunately, we are not in the world. We already have incontrovertible proof that an individual’s preferences can be changed, because enormous resources are expended to indeed change them. We call this marketing, advertising, public relations. We are continuously bombarded with messages that tell us how we can achieve fame, success, money, slenderness… or that if we consume a certain product we will be handsome, or in love, or sexy, or smart. In total, global advertising is a $100 billion business. The very fact that the advertising industry exists – and exists to the extent that it does – is itself proof, in the logic of economics, of the malleability of our preferences from the outside.

And here is the public policy challenge: most current attempts at manipulation of preferences have no relationship with Flourishing. That is, those who are trying to change individual’s preferences are doing so for their own ends, not those of the individual. In the orthodox economics world where preferences were fixed, marketing could be viewed as providing information (which is, in fact, what the industry says) and so there is in fact no inherent conflict. ‘If I am what I yam’ (in Popeye’s immortal words) is true, then advertising is pretty benign.

But in the real world where preferences can be changed (by yourself through some process, or from the outside through some other process(es)), there is no reason to believe that someone else’s attempts to change your preferences will maximize Flourishing.

Of course, it might work. I see an advertisement (or a Like from my Friend) and give Tango dancing a go, attracted by the image of sexy Argentina and the beauty of the music and movement. I love it and am happy to incorporate it into my preferences and spend money and time pursuing a new hobby. And the teacher or club who advertised and provided the service achieves their objectives – they have sold me something.

But it can easily go the other way. I drink the beer, but buxom girls in bikinis do not show up in my life in greater numbers than before, and I fail to attain the body that the guy in the advertising has.

Overall, in a world where a profit- and growth-seeking entity can both create demand for its good by cleverly shaping preferences and fulfill that demand, it seems inevitable¹⁾It would be a fairly easy exercise to construct a simplified mathematical model (as economists do) of this and show under these conditions the good in question is over-produce/over-consume versus the optimum.that the amount of the good in question will be over-produced and over-consumed relative to the production/consumption that would maximize Flourishing. ²⁾In developing Nevinomics, I have been struck again and again by how much wisdom has been lost by the profession in the last 40 years. The issue we are discussing here was in fact very well analyzed by both Fred Hirsch (Social Limits to Growth) and John Kenneth Galbraith (Age of Affluence).

And when we look around at our complex economic ecosystems (CEEs), we see multiple examples of maximal Flourishing being thwarted by over-production and/or over-consumption of certain goods due to a supplier’s ability to shape preferences (or even demand directly). Examples of this include the following:

1. We are told (by those that should know, such as the real estate industry) that housing prices will always go up and a granite counter top is an investment (so changing our preferences), and we spend too much getting on the housing ladder.
2. Medicine (in some places) is privatized and pharmaceutical and other providers can advertise directly to the patient population, so we spend too much on medical services, with dubious improvements (or even deteriorations) in health.
3. Certain foods are engineered to be ‘moreish’³⁾Definition: having a very pleasant taste and making you want to eat more. (certainly a shaping – indeed a manipulation – of preferences) so that you will consume more of them; of course, such foods are certainly ones that contain high salt/fat/processed sugars content that are noxious to the health.
4. We are encouraged (by experts) to choose actively managed investment funds or do self-investing where we trade too much (versus low cost index funds) leading to spending more on financial services than is optimal.

A particularly disturbing example is the privatization of prisons. Basically, when this happens, there is now a group in society that has a strong financial interest in having as many people in prison as possible, creating a corollary interest in shaping voter preferences so that people are sent to prison for less serious offences. As with many challenges in modern society, the US leads the way here.⁴⁾See Vicki Pelaez, “The Prison Industry in the United States: Big Business or a New Form of Slavery?” at Global Research: Centre for Research on Globalization, US Prisons. In a world where preferences are not fixed, and where the shaping of individual preferences is complex and influenced by many factors and groups, avoiding uncomfortable questions around these issues will certainly lead to poor Flourishing. So by Nevinomics’ logic, we have to care. This is the answer to Question 1. We will address Questions 2-5 in subsequent articles.  

Photo: Parthiv Kurup