Where do preferences come from?

[StrangeLoop]

Where do preferences come from? Does it matter?

“Man can do what he wants but he cannot want what he wants.” – Arthur Schopenhauer

If preferences are partially formed due to social influences (plus biology, etc.), and if social influences can be properly skewed by coporate interests, then is Galbraith’s “dependence effect” true? Or what?

[Student]

Well, I think it is certain that social influences help form our preferences and among those influences is advertising by companies. But, the dependence effects goes beyond saying that preferences can be influenced by advertising. Instead, Galbraith argued that the connection between advertising and preferences was so direct and deterministic that the distinction between consumer and supplier became meaningless. If producers wanted to sell more product, they wouldn’t lower prices, they would simply ramp up adveritisng. This was part of his effort to try and demolish the partial-equilibrum (supply and demand) framework.

At least, this is how I remember it (it has been a long time since I read the Affluent Society or any Galbraith really).

Really, I think Hayek’s response to Galbraith makes the most sense. But he doesn’t even come close to really answering how preferences are formed.

http://www.mises.ch/library/Hayek_SEJ_Non_Sequitur_of_Dependence_Effect.pdf

Anyways, I think you ask a really great question. And I don’t think enough professional economists ask that question let alone try and answer it. We basically take preferences as given and let the psychologists/sociologists/etc figure out where they come from. I think this is changing as marketing research is becomming a lot more widely read. Plus, akerlof and kranton’s work on economics and identity would probably will help contribute to our understanding.

I think the book “Buyology” is suppose to be a good, popular intro to the work that has been done on the field. But I have not had time to pick it up.

[Lilburne]

Rothbard also responded to Galbraith in Man, Economy, and State.

[I_Ryan]

@StrangeLoop

Where do preferences come from?

Usually from beliefs.

@StrangeLoop

Does it matter?

Of course.

@StrangeLoop

If preferences are partially formed due to social influences (plus biology, etc.), and if social influences can be properly skewed by coporate interests, then is Galbraith’s “dependence effect” true?

As to the dependence effect, first let’s see the standard Austrian response.

@Ludwig von Mises

It is a widespread fallacy that skillful advertising can talk the consumers into buying everything that the advertiser wants them to buy. The consumer is, according to this legend, simply defenseless against “high-pressure” advertising. If this were true, success or failure in business would depend on the mode of advertising only. However, nobody believes that any kind of advertising would have succeeded in making the candlemakers hold the field against the electric bulb, the horsedrivers against the motorcars, the goose quill against the steel pen and later against the fountain pen. But whoever admits this implies that the quality of the commodity advertised is instrumental in bringing about the success of an advertising campaign. Then there is no reason to maintain that advertising is a method of cheating the gullible public.

It is certainly possible for an advertiser to induce a man to try an article which he would not have bought if he had known its qualities beforehand. But as long as advertising is free to all competing firms, the article which is better from the point of view of the consumers’ appetites will finally outstrip the less appropriate article, whatever methods of advertising may be applied. The tricks and artifices of advertising are available to the seller of the better product no less than to the seller of the poorer product. But only the former enjoys the advantage derived from the better quality of his product.

The effects of advertising of commodities are determined by the fact that as a rule the buyer is in a position to form a correct opinion about the usefulness of an article bought. The housewife who has tried a particular brand of soap or canned food learns from experience whether it is good for her to buy and consume that product in the future too. Therefore advertising pays the advertiser only if the examination of the first sample bought does not result in the consumer’s refusal to buy more of it. It is agreed among businessmen that it does not pay to advertise products other than good ones.

Maybe the consumers aren’t defenseless, and maybe success in business doesn’t depend on the mode of advertising only, but perhaps there’s some truth to it? Maybe there really is “an abundance of contrived wants as a product of corporate planning and mass adverstising”? It could be that advertising alone can’t do anything in the long term, but is still an essential part of “cheating the gullible public”, right?

First, his point that advertising can only get the consumer to try the product; it can’t get them to keep using it after they find it useless. I think that’s a very important point. It doesn’t pay to trick a few people into using your product if they reject it right away. So to contrive their wants, you can’t just trick a few people into using your useless product once; you must trick a lot of them into using your useless product consistently. It wouldn’t be nearly enough to just trick them at the outset (into trying your product); you must also trick them along the way (into liking your product).

So would it be possible to do that? Yes, but not with just anything. It takes a special kind of product to trick the masses into using it consistently, thinking that they’re doing the right thing. And I know of at least one example. I call them the self-compensators. They cause some sort of problem, but then fix it right afterward. An example is running shoes. They make you gravitate toward an unnatural technique (closer to a heelstrike), but then “fix” the problem by offering a lot of support to compensate for your bad technique. If you stop using the running shoes for just a few runs, you will find yourself very uncomfortable, and going back to the running shoes. They cause the problem (bad technique), but then compensate for it (with the additional support). And then you find yourself dependent on them. Uselessly dependent.

But that’s obviously a controversial example. If you don’t agree, I would be happy to discuss it, but it’s not too important for the topic at hand. I just wanted to give a clear example, and I think that I did that. If you just get enough people to try the self-compensator (through bullshit advertising), they will stick with it. If you just infect enough people, the product will do the rest. I don’t think that bullshit advertising alone can trick the masses into using something useless over and over, but I do think that it’s an essential part of selling the useless self-compensators. And they’re a pretty extensive category. They are very widespread. Running shoes, shampoo, and so on. They aren’t a small category.

[Physiocrat]

I don’t know about running shoes but I have used water solely on my hair few a good few years now and no one can I don’t use shampoo. Also boiling water is so much better than shaving foam.