Preferences and Decision-Making

  • Preferences reflect an individual's attitude towards a set of objects.
  • Preferences can be influenced by decision-making processes, even unconsciously.
  • Factors such as surroundings, upbringing, and repeated exposure can affect preference.
  • Preferences can be reflected in explicit decision-making processes.
  • Preferences are not necessarily stable over time.
  • Preferences in economics refer to the assumptions related to ordering alternatives based on happiness, satisfaction, gratification, or utility.
  • Rational Choice Theory suggests that individuals make decisions based on rational preferences aligned with self-interests.
  • Consumer preferences have properties like completeness, transitivity, and non-satiation.
  • Preferences can be represented by utility functions.
  • Expected Utility Theory explains that individuals maximize the expected value of a utility function based on preferences.

Risk Preference

  • Risk preference refers to how much risk a person is willing to accept based on expected utility or pleasure of the outcome.
  • Risk tolerance is an important component of personal financial planning.
  • Risk preference can be characterized by engaging in advantageous behaviors that may involve potential loss.
  • In economics, risk preference involves engaging in behaviors with greater variance returns, often associated with monetary rewards.
  • There are two traditions of measuring risk preference: revealed and stated preference.

Relation to Desires

  • Preferences and desires are conative states that determine behavior.
  • Desires are directed at one object, while preferences involve a comparison between two alternatives.
  • Preferences are often focused on in decision theory.
  • Preferences can be defined in terms of desires, with desires involving a degree or intensity.
  • Preferences reflect the strength of desires for different alternatives.

Mathematical Foundations

  • Gérard Debreu laid down the mathematical foundations for common types of preferences.
  • Andranik Tangian developed methods for eliciting preferences based on Debreu's work.
  • Additive and quadratic preference functions can be constructed from interviews.
  • Rational preferences and Rational Choice Theory do not always accurately predict human behavior.
  • Behavioral economics offers an alternative approach by considering deviations from rational preferences.


  • Insolvency can refer to a situation where a company pays specific creditors, making them better off than others.
  • Companies may seek formal insolvency procedures like administration or liquidation after paying preferred creditors.
  • Preferences occur when there is a desire to make a creditor better off, leading to potential legal action.
  • Wrongful trading and disqualification are risks associated with preferences.
  • The rules on preferences require proving that transactions result from ordinary commercial considerations.

Preference Mentions

Preference Data Sources

Reference URL
Knowledge Graph