Keywords

revealed preferences, normative preferences, retirement savings, asset allocation, defined contribution pension plan

Abstract

Revealed preferences are tastes that rationalize an economic agent's observed actions. Normative preferences represent the agent's actual interests. It sometimes makes sense to assume that revealed preferences are identical to normative preferences. But there are many cases where this assumption is violated. We identify five factors that increase the likelihood of a disparity between revealed preferences and normative preferences: passive choice, complexity, limited personal experience, third-party marketing, and intertemporal choice. We then discuss six approaches that jointly contribute to the identification of normative preferences: structural estimation, active decisions, asymptotic choice, aggregated revealed preferences, reported preferences, and informed preferences. Each of these approaches uses consumer behavior to infer some property of normative preferences without equating revealed and normative preferences. We illustrate these issues with evidence from savings and investment outcomes.

Original Publication Citation

“How Are Preferences Revealed?” 2008. Journal of Public Economics, 92(8-9): 1787-94 (with John Beshears, James J. Choi and David Laibson). https://doi:10.1016/j.jpubeco.2008.04.010

Document Type

Peer-Reviewed Article

Publication Date

2008

Publisher

Journal of Public Economics

Language

English

College

Marriott School of Business

Department

Finance

University Standing at Time of Publication

Full Professor

Download

Share

COinS