Our experiences shape our future choices

We make choices every day. But are our preferences fixed, or do they evolve as we experience new things? This question is explored in a recent study by economic researchers.

From deciding on the colour of the trousers we wear, to determining the direction of our careers, our lives are full of choices. Businesses decide whether to raise prices or lay off employees. According to economic theory, these decisions are not random; they are driven by motivations. Our choices aim to satisfy these motivations as best as possible, given the information available to us.

In 1938, the American economist Paul Anthony Samuelson introduced the theory of revealed preference. This approach allows us to deduce the preferences underlying an individual’s choices based on certain observable properties. If we analyse someone’s choices across different situations and find they consistently follow specific patterns, we can conclude that their decisions reflect an underlying preference. This idea is formalised in the axiom of revealed preference, which states that if an individual chooses one option over another when both are available, they reveal a preference for that option. In theory, they should not later choose the rejected option while the preferred one remains available. For instance, if someone selects coffee over tea when both are offered, they demonstrate a preference for coffee. If their preference is consistent, they will always choose coffee over tea in similar situations.

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Discovering Preferences

The article Revealing Preference Discovery: A Chronological Choice Framework, published in Theory and Decision (2024) by economists João V. Ferreira and Nicolas Gravel, examines alternative theories of choice in which preferences are not fixed but are instead discovered through experience. In this model, individuals refine their preferences over time through trial and error. Initially, choices may be uncertain, but through repeated decisions, people identify their true inclinations and use them to make more rational choices.

The revealed preference axiom is an observable implication of rational choice theory, which assumes that individuals have well-defined, mathematically consistent preferences. However, when making initial choices, people may know very little  about what they like. No one is born knowing their preferences. Through experimentation—sometimes randomly—we become aware of our inclinations. This perspective aligns with reality, as researchers argue that children are born without predetermined tastes. For example, a child who tries chocolate and vegetables for the first time only discovers their preference after experiencing both. Early choices are trial and error, but once all alternatives have been tested, a preference emerges, guiding future decisions.

This concept introduces a chronological or sequential approach, which is absent from classical choice theory. By incorporating this perspective, researchers identify observable implications—formalized as axioms—of three choice theories, each suggesting that individuals behave as if they are discovering their preferences.

For example, imagine an individual facing a series of choices between potatoes and carrots. If they randomly choose carrots first, then opt for potatoes the second time, they gain experience with both. From the third choice onward, if they pick carrots, they reveal a firm preference for carrot over potatoes and will stick to that preference in all future decisions between the two vegetables. 

Refining Your Ranking to Make Better Choices

Several theories of choice can be explored in this context. The first, as outlined earlier, suggests that individuals start with no clear preferences. Through experience, they gradually discover their inclinations. After trying different options, they compare their experiences and form a preference. For example, if someone chooses carrots the first time, then potatoes the second time, but returns to carrots the third time, they demonstrate a preference for carrots and will continue choosing them in future decisions.

Another theory proposes that individuals begin with an a priori assumption—a premonition—about what they might like. They make initial choices based on this premonition, but their experiences may confirm or challenge it. If a choice turns out to be disappointing, its position in their mental ranking decreases. Conversely, a positive experience may elevate its ranking.

For instance, if someone initially believes they prefer carrots over potatoes, their experience with potatoes may either reinforce or alter this belief. Once they have tried all available options at least once, their relative ranking of choices becomes fixed. At this point, a stable preference emerges, guiding all future decisions.

A third theory explored in the paper suggests that individuals can anticipate how their present choices might shape their future preferences, a concept observed in addiction-related behaviours. For example, someone may recognize that trying a cigarette could lead to tobacco addiction, making them more likely to accept future cigarette offers. In this scenario, if an individual is given the choice to smoke at the beginning of a decision sequence—knowing that cigarettes will be available in later choices—they may refuse, fearing addiction and the inability to resist in the future. However, if the same choice is presented at the very end of the sequence, they might agree to try a cigarette, knowing they will not face future temptation. This model introduces the idea of avoiding certain choices due to fear of future dependence. 

Another example is a student on the night before an important exam. Exhausted from revising, they might want to relax with a beer before bed. However, most students will resist, knowing that once they go to the bar and have one beer, their preference may shift - they’ll likely want a second, then a third, and eventually a fourth. As a result, they risk arriving at the exam the next day feeling less prepared and less efficient. By resisting temptation, individuals aim to protect themselves from a potential shift in future preferences.

Theorising the Complexity of Motivations

Economics is often described as the science of choice. Like psychology and mathematics, it studies the mechanisms that drive individual decision-making. By considering the sequence of choices and their effects, we gain insight into how people form preferences and their ability to anticipate future decisions.

The implications identified in the article are easily testable and could have practical applications in fields such as psychology and marketing. By analysing a person’s observed choices, we can determine whether their preferences were predefined or discovered through trial and error—whether through random experimentation, as in the first model, or based on initial assumptions, as in the second. This theory assumes that once preferences are established, they remain stable and guide future decisions.

One limitation of the approach presented in the article is that it only considers choices with certain consequences. The authors aim to extend their analysis to include decisions with uncertain outcomes.

Future research may also explore other ways to expand the theory. One possibility is to move beyond the "single preference" framework of classical theory. Even if individuals refine their preferences through experience, current models assume they ultimately settle on a single preference that remains unchanged over time. Researchers are now working on a theory in which individuals may hold two distinct preferences, switching between them based on circumstances and a unpredictable  change process.

In this model, individuals would be seen as dual beings—similar to the soldier in Stanley Kubrick’s Full Metal Jacket, who wears a peace symbol on his helmet alongside the inscription "Born to Kill". Identifying the observable implications of such a theory is challenging, but this work could bring economic theory closer to the true complexity of human decision-making with all its nuances, and indeed, its occasional irrationality.