Objectives
Economic theory has traditionally relied on a framework that views people as "rational actors" who maximize their personal satisfaction by obtaining goods and services. In this framework, goods and services are narrowly defined as things that can be bought and sold, and preferences come from outside the economy. People make decisions on the basis of the opportunities they face — opportunities generally described in terms of a person's income and the prices associated with a given choice.

While this framework may have been adequate for describing the market-based interactions traditionally addressed in economic policy, it is less well suited for understanding many aspects of behavior within the family, on the job, and in the community. Nor has it been able to deal cogently with pressing social problems, including crime, drug abuse, discrimination, urban decay, and harm to the environment. Increasingly, economists addressing these problems find they need models that take into account the complex nature of preferences and human motivation.

Approach
Established in 1997, the Network on the Nature and Origin of Preferences seeks to broaden the behavioral assumptions of the rational actor model. The network — which includes economists, psychologists, anthropologists, biologists, and legal scholars — is exploring the relationship between individual well-being and choices; the role played by reciprocity and trust in promoting cooperation and prosocial behavior; and the role of social policy and economic institutions in the long-term evolution of preferences.

One major area of interest concerns risk acceptance: Why is it that, in contrast to standard economic theory, people make choices that are not always in their own best interest? The researchers will examine how risk acceptance varies by factors such as age and gender; look at the systematic advantages or disadvantages this entails in a variety of domains (drug-taking, violence, sex, health, environmental hazards, financial investments); and consider the social policy implications in areas ranging from health education to divorce law.

Another important focus of research is the concept of "reciprocal fairness." A growing body of evidence suggests that individual behavior is neither totally selfish nor selflessly altruistic. Instead, under the right social conditions, people will care about others — even strangers — and about the process as well as the outcomes of economic interactions. The network will explore the concept of reciprocal fairness as a framework for understanding both cooperation and the willingness to retaliate for non-cooperation, even at great personal cost, in order to enforce social norms.

Finally, the Preferences Network is exploring the social implications of the frameworks it is developing. Honesty, generosity, reciprocity, and other values fundamental to society are sustained through processes of social learning and cultural transmission. These processes in turn are shaped by economic policies and institutions. A better understanding of how preferences are shaped might suggest, for example, how strengthening communities, rather than merely strengthening punishments, can lower the rates of crime and violence; what sorts of redistributive policies might satisfy people's support for social welfare programs without violating their sense of reciprocal fairness; how schools can best prepare students behaviorally for the world of work; and better systems for weighing benefits and costs in designing environmental policy.

Network Information