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Karucaka and Zaman – social influences on preferences

Karucaka and Zaman (2012) summarise an extensive body of literature which suggests that neoclassical assumptions about preferences and behaviour may not coincide with observations in the real world. In this extract from pp.372-373, they argue that preferences are not exogenous, outlining some social influences:

Is it true that a simple model of self-interest where all actors maximise material payoffs to themselves provides a good first approximation to human behaviour which is universally applicable? Many economists appear to believe this, and the utility maximisation model is the bedrock and foundation of economic theory. Nonetheless, there is overwhelming empirical evidence that this is not so. Henrich et al. (2001) searched for homo economicus in 15 societies but could not find him anywhere. Their experiments confirm findings which have extensive empirical support from a large number of studies:

  1. Generosity, in conflict with economic theory, is widespread, though the levels vary with many factors. This means that simple utility maximisation models fail to provide even a rough guide to human behaviour in a wide variety of situations.

  2. Preferences are not exogenous, but responsive to social and structural circumstances surrounding the choices to be made. This means that human welfare cannot be measured solely by the final consumption bundle. Both the process by which it was obtained, and the consequences to others, matter.

  3. Institutional details and social norms impact greatly on human behaviour. Thus, human behaviour is far more flexible than assumed by economic models, and also subject to shaping by social structures.

Henrich, J., Boyd, R., Bowles, S., Camerer, C., Fehr, E., Gintis, H. and McElreath, R. (2001) ‘In search of homo economicus: behavioral experiments in 15 small-scale societies’, American Economic Review, Vol. 91, No. 2, pp.73–79.

Karacuka, M., & Zaman, A. (2012). The empirical evidence against neoclassical utility theory: a review of the literature. International Journal of Pluralism and Economics Education, 3(4), 366-414.

Commentary added, 10 November 2014

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