Exotic Preferences: Behavioral Economics and Human Motivation

Citation

Ianole, R. (2011), "Exotic Preferences: Behavioral Economics and Human Motivation", International Journal of Social Economics, Vol. 38 No. 4, pp. 408-410. https://doi.org/10.1108/03068291111112086

From the beginning, Loewenstein's book – Exotic Preferences: Behavioral Economics and Human Motivation – one is struck by the way it attempts to connect the academic discussion to your own life and personal feelings. And if you are curious how this can happen in a book in economics, you have at your disposal, the first witty chapter on the psychology of curiosity that explains your impulses.

On the leitmotiv that the author definitely likes a good story, each article has a personal background introduction that plays an appealing role in awakening your interest in, not only for the present piece of work, but also in the author's collaborative research work. The puzzle of each of the six sections is that they are built in an ascending tempo reaching an effective summarizing essence and yet consolidated via the papers around it.

To begin with, the economics of meaning and the behavioral understanding of Adam Smith strike me in the true sense of changing paradigms. Translating the contested utilitarian theme in a statement like “I was happy as much of the time as I possibly could have been given the opportunities that I faced” succinctly rephrase the motivation, and a couple of decades of evolution, of the whole field of behavioral economics.

Moving the emphasis from the individual towards a social perspective, we find out how to estimate social utility functions in a dispute context, with a focus on the importance of relative comparisons. One of the most useful papers is that regarding the cause of impasse in negotiations which beautifully explains the tendency for parties to arrive at judgments that reflect a self‐serving bias – to conflate what is fair with what benefits oneself.

Another focal point is the important distinction between situations in which multiple options are presented, simultaneously, and can be easily compared, and situations in which alternatives are presented one at a time and evaluated in isolation: joint evaluation and separate evaluation. In this context, it is not so surprisingly that our preferences will not be well defined for things we have yet to experience, but uncertainty can also persist even after considerable experience. The eight experiments clearly presented and discussed in the section regarding stable demand curves without stable preferences represent a relevant glimpse of strong experimental proofs, available in most relevant studies. I also highly appreciate the novelties regarding the endowment effect suggesting that people not only become attached to what they have, but do so unknowingly. People seem to be unwittingly trapped by their choice. Moreover, they make choices with an unrealistic sense of their reversibility.

The section dedicated to intertemporality, as a generally high‐mathematical one, is in fact one of deep nuances that agrees with the assertion that people are inconsistent in the intertemporal choices they make. However, it argues that a profound and complex look at their preferences can explain some of the apparent flaws in their behavior. In a technical note, a hyperbolic time discount function explains time‐discounting behavior better than the exponential function incorporated in most economic analyses. As a beautiful addendum, the next chapter tries to bring some light on the choice between sequences. The empirical results presented highlight the fact that if a tradeoff is embedded in the context of two alternative sequences of outcomes, the psychological perspective – the frame‐shifts and individuals become more farsighted, often wishing to postpone the better outcome until the end.

The last part of the book explores the emotional area of emotions, balancing the implications of positive and negative emotions, all under the vast cupola of uncertainty. What we can irrevocably infer from here is that emotions transform people fundamentally, including along lines that are of great interest to economists: “In different emotional states, it seems, it is almost like if we become different people”.

With its emphasis on preferences, tastes, feeling and emotions, Exotic Preferences: Behavioral Economics and Human Motivation remains a key research summary that enhances our understanding of human behavior in general and, in particular, of our own socio‐economic triggers.