Favies!!!

I was confused about favorites. Whenever someone asked “What is your favorite X?” Then I wasn’t really sure what to say. What are they really asking me?

They are not asking me what my most preferred option is in some category of things. If I believe that preferences are revealed by actions, then how in one moment could I say that I prefer broccoli and then in the next moment eat a carrot? How would it make any sense to prefer something and not choose it?

The answer is that favorites have little to do with preferences. Preference is what we have for the option of highest benefit netted of cost – what we value most. The most preferred thing is the thing which gives us the most value after we incur the cost. My favorite wine might be a Phebus Malbec Reserve. But the nearest one might be 2 miles, 30 minutes, and $20 away. Not to mention the opportunity cost of my present company and activity. A good ol’ standby Bodega Elena De Mendoza Malbec might be in the Kitchen drawer, 2 steps, 2 minutes, and no lost company away. My favorite malbec is by Phebus. But would I prefer Elena to Phebus? You betchya!wine favorite

The reason is that the net benefit (value) of drinking an Elena is MUCH higher than that of drinking a Phebus. Even though the benefits of a Phebus are much greater than an Elena, the costs are such that I don’t prefer my favorite.

When someone asks what your favorite is, they are really asking what it is that provides you the greatest benefit – regardless of the costs. If someone asks what your favorite brand of jeans are, and then you proceed to tell them why the “really good ones” are too expensive to be your favorite, then they’ll follow up by saying “But ignoring that, it is your favorite?”

Further, the category of a favorite often implies a constrained measure of benefits. When people ask what your favorite food is, they want to know the food which you think has the best combination of taste/texture/smell/moisture/consistency etc. They are not even asking you which food you like the most. If I really love to punch walnuts with my fists, so much so that it is my favorite food for this reason, it is of little or no relevance to what the asker really cared about learning. They want to know what my favorite food is in particular dimensions of perceived benefits. When the asker chooses a category for the favorite thing, they intend that you not choose the thing of greatest benefit. They intend that you choose the thing of greatest benefit via particular parameters. The enjoyable punch-ability of a food is typically not the relevant parameter.

Favorite Food Benefit Function:               

B = αX + βX

Favorite Food Benefit Function that is Relevant to the Asker:

B = αX

B = Benefit

α = Taste

β = Pleasure from Punching

Favorites are not the most preferred thing. Favorites are the most preferred thing if we suspend the concept of cost. Now it might also be that the favorite thing also happens to be the most preferred thing. But they are incidental and orthogonal to one another. It is the difference between benefit AND cost which determines preference. The most preferred thing is the marginal thing that we value most. The actual level of benefit, without considering cost, is meaningless to the decisions which reveal our preferences. Therefore, we can induce that the level of benefits alone is meaningless to our preference. This is why we are usually doing things which are not our favorites.

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4 thoughts on “Favies!!!

  1. Austin says:

    2 criticisms:

    -You’re defining “favorite” in a way I don’t actually use; Tecate with a lime wedge is my favorite post-yardwork beer, but it’s precisely because it’s a low-cost option. Language is slipperier than you give it credit for here. Your definition likely works as a generalization, but it’s not the mathematical certainty you characterize it to be.

    -Diminishing marginal utility (holding costs constant or at zero) is enough to explain why people don’t usually do those things which are their favorites; it may be that our favorites’ marginal benefit curves possess the most negative first derivative. Even in a world without scarcity, we would not consume only our favorite thing, perhaps not even often consume our favorite thing.

  2. pacvae says:

    Austin,

    I’m fairly certain that you’d enjoy something else even more after mowing the lawn if scarcity weren’t an issue. Further, the pecuniary cost isn’t the only one [maybe not even the primary one]. Enjoying the characteristic of cheapness, I’d say, is different form enjoying a low cost. You can’t enjoy a low cost. you can only prefer a greater marginal benefit per marginal cost.

    On your 2nd point, DMU is different and apart from DMB. MU [or maybe MV] is net of cost inclusive. A negative 1st derivative only changes what your thing that has the highest benefit is. I was only addressing a single margin at any given time. I agree, of course, that the same thing need not – and probably won’t – be the same on ALL margins (without lexicographic preferences).

    • Austin says:

      If scarcity weren’t an issue I wouldn’t be mowing the lawn.

      But if your first paragraph is addressed to mine, you’ve missed my point. When someone asks me what my favorite X is, I include the opportunity cost in my consideration. When I ask someone what their favorite is, I expect them to include cost. The way you use the word to establish your argument is not how I use the word; it is a definition, not the definition. It just happens to be the definition that makes the rest of your argument valid.

      “Holding cost constant or at zero” combined with DMU implies DMB.

      Just to make sure: your argument is that favorites exclude while preferences include costs. The inclusion of cost produces a consumed bundle of goods which substitutes high-benefit/high costs goods for lower-benefit/lower-cost goods that maximizes total benefit net cost.

      Sure. It may well. But you can also reach that bundle of goods in a scarcity-free world with DMB. Or if consuming variety provides a benefit.

      It’s reasonable to suggest that favored goods tend to have relatively higher costs per benefit, and are therefore substituted out for preferred goods. But it isn’t necessarily so, which is what I understand “This is why we are usually doing things which are not our favorites” to mean.

      • pacvae says:

        All True Sir. It may be the case that on the margin, a bundle is the most preferred. And you are right about the definition too. One could use favorite to mean most favored, I guess. 🙂

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