In defence of revealed preference theory

Abstract

This paper defends revealed preference theory against a pervasive line of criticism, according to which revealed preference methodology relies on appealing to some mental states, in particular an agent’s beliefs, rendering the project incoherent or unmotivated. I argue that all that is established by these arguments is that revealed preference theorists must accept a limited mentalism in their account of the options an agent should be modelled as choosing between. This is consistent both with an essentially behavioural interpretation of preference and with standard revealed preference methodology. And it does not undermine the core motivations of revealed preference theory.

Functionalism and the role of psychology in economics

“…Firstly, it agrees with Guala (2019) that the dichotomy between the two traditions needs to be broken down; see also Ross (2005). Secondly, I follow Clarke (2016) and Thoma (2020) in drawing attention to an ambiguity in the concept of choice behaviour. Thirdly, I build on the work of Dietrich and List (2016) by giving an explicit example of what a functionalist hypothesis might look like in an economic context (Section 3).…”

“…It follows, as a corollary, that a helpful precursor to answering the psychology-in-economics question about whether economics should study the psychological basis of choice behaviouris to first ask question V from my proposed framework: does economics ultimately aim to predict and explain an agent's choices qua intentional choices? Since this point has already been made briefly by Clarke (2016) and more carefully and thoroughly by Thoma (2020), my treatment here will be quick.…”

“…Functionalist hypotheses treat hardware variables as cognitive variables. Economists in the behavioural tradition would clearly answer no, as would Clarke ( 2016), Guala (2019), Thoma (2020) and Vredenburgh (2020). For many other theorists, however, it's not clear how they would answer this question about the ultimate aims of economics.…”

“…Does this discovery about this voter speak to one of the questions about the voter that economics was ultimately aiming to answer? It is clear that Gul and Pesendorfer (2008) would answer no, as would Clarke (2016) and Thoma (2020). Dietrich and List (2016) say that economics ultimately aims to test functionalist hypotheses, and so they are implicitly committed to defending a yes answer.…”

“…To be specific, the ordinary intentional theory says that for an agent A to choose an option O 1 over an option O 2 is just for the following to hold: (i) A forms an intention to move her body in way X; and (ii) A knows that moving her body in way X will result in O 1 occurring rather than O 2 occurring. 12 For more on the distinction between intentional action and mere bodily movement see Wilson and Shpall (2016); see also Thoma (2020) for a discussion in the context of economic models of choice behaviour.…”