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The Construction of Preference

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The Construction of Preference Award Addresses The Construction of Preference Paul Slovic Decision Research and University of Oregon One of the main themes that has emerged from behavioral Edwards's (1954) review was followed by a rapid decision research during the past 2 decades is the view proliferation of theories of choice and decision making, that people's preferences are often constructed in the pro- along with carefully controlled experiments designed to cess of elicitation. This concept is derived in part from test those theories. This work followed two parallel studies demonstrating that normatively equivalent meth- streams. One, the theory ofriskless choice, had its origins ods of elicitation often give rise to systematically different in the notions of utility maximization put forth by Jeremy responses. These "preference reversals" violate the prin- Bentham and James Mill. The first formal economic the- ciple of procedure invariance that is fundamental to the- ories based on these notions assumed that decision makers ories of rational choice and raise difficult questions about are (a) completely informed about the possible courses the nature of human values. If different elicitation pro- of action and their consequences, (b) infinitely sensitive cedures produce different orderings of options, how can to differences among alternatives, and (c) rational in the preferences be defined and in what sense do they exist? sense that they can rank order the possible choices and Describing and explaining such failures of invariance will make decisions that maximize some subjective measure require choice models of far greater complexity than the of value or welfare—usually designated by the term utility. traditional models. The second stream, the theory of risky choice, deals with decisions made in the face of uncertainty about the events that determine the outcomes of one's actions. Maximization also plays a key role in these theories, but The meaning of preference and the status of value may be il- the quantity to be maximized becomes, because of the luminated by this well-known exchange among three baseball uncertainty involved, expected utility. Tests of the theory umpires. "I call them as I see them," said the first. "I call them that individuals behave so as to maximize expected utility as they are," claimed the second. The third disagreed, "They ain't nothing till I call them." Analogously, we can describe have been the topic of hundreds of experiments, many three different views regarding the nature of values. First, values of which studied reactions to well-defined manipulations exist—like body temperature—and people perceive and report of simple gambles as their basic research paradigm. them as best they can, possibly with bias ("I call them as I see A basic assumption of rational theories of choice is them"). Second, people know their values and preferences di- the principle of invariance (Tversky & Kahneman, 1986; rectly—as they know the multiplication table ("I call them as Tversky, Sattath, & Slovic, 1988), which states that the they are"). Third, values or preferences are commonly con- relation of preference should not depend on the descrip- structed in the process of elicitation ("They ain't nothing till I tion of the options (description invariance) or on the call them"). The research reviewed in this article is most com- patible with the third view of preference as a constructive, con- text-dependent process. (Tversky & Thaler, 1990, p. 210) Editor's note. Articles based on APA award addresses that appear in the American Psychologist are scholarly articles by distinguished con- he expression of preference by means of choice and tributors to the field. As such, they are given special consideration in decision making is the essence of intelligent, pur- the American Psychologist's editorial process. poseful behavior. Although decision making has This article was originally presented as part of a Distinguished T Scientific Contributions award address at the 102nd Annual Convention been studied for centuries by philosophers, mathemati- of the American Psychological Association in Los Angeles, California, cians, economists, and statisticians, it has a relatively short in August 1994. history within psychology. The first extensive review of Daniel Kahneman served.as action editor for this article. the theory of decision making was published in the Psy- chological Bulletin by Edwards (1954), whose article in- Author's note. I am indebted to Sarah Lichtenstein, Baruch Fischhoff, troduced psychologists to the "exceedingly elaborate, Amos Tversky, and Danny Kahneman, who made immense contribu- tions to the research described in this article and who made the conduct mathematical and voluminous" (p. 380) economic lit- of my own research in this area a truly pleasurable and exciting venture. erature on choice and reviewed the handful of relevant Correspondence concerning this article should be addressed to Paul experimental studies then in existence. Slovic, Decision Research, 1201 Oak Street, Eugene, OR 97401. 364 May 1995 • American Psychologist Copyright 1995 by the American Psychological Association, Inc. 0003-066X/95/S2.00 Vol. 50, No. 5, 364-371 method of elicitation (procedure invariance). Without An early demonstration of response-mode effects by stability across equivalent descriptions and equivalent Slovic and Lichtenstein (1968) used simple gambles as elicitation procedures, one's preferences cannot be rep- stimuli (e.g., .3 chance to win $16 and .7 chance to lose resented as maximization of utility. $4). Slovic and Lichtenstein observed that ratings of a Between 1950 and 1960 another development was gamble's attractiveness and choices between pairs of taking place that was to have a profound influence on the gambles were influenced primarily by the probabilities study of decision making. This was the work of Simon of winning and losing, whereas buying and selling prices (1956), who sharply criticized the assumption of max- (e.g., "What's the most you would pay for a chance to imization in utility theory. Simon argued that actual de- play this gamble?" or "What's the least amount for which cision-making behavior is better described in terms of you would sell a ticket to play it?") were primarily de- bounded rationality. A boundedly rational decision maker termined by the dollar amounts that could be won or attempts to attain some satisfactory, although not nec- lost. When participants found a bet attractive, their prices essarily maximal, level of achievement. Simon's concep- correlated predominantly with the amount that could be tualization highlighted the role of perception, cognition, won; when they disliked a bet, their prices correlated pri- and learning in decision making and directed researchers marily with the amount that could be lost. This pattern to examine the psychological processes by which decision of correlations was explained as the result of a starting problems are represented and information is processed. point (anchoring) and an adjustment procedure used In recent years the information-processing view has when setting prices. Respondents setting a price on an dominated the empirical study of decision making. Both attractive gamble appeared to start with the amount they streams of research, on risky and on riskless choice, have could win and adjust it downward to account for the been merged in a torrent of studies aimed at describing probabilities of winning and losing as well as for the and understanding the mental operations associated with amount that could be lost. The adjustment process was judgment and decision making. The result has been a far relatively imprecise, with the price response greatly in- more complicated portrayal of decision making than that fluenced by the starting point payoff. Ratings and choices, provided by utility maximization theory. It is now gen- on the other hand, appeared to be governed by different erally recognized among psychologists that utility max- rules, leading to greater emphasis on probabilities. imization provides only limited insight into the processes Lichtenstein and Slovic (1971) hypothesized that if by which decisions are made. people process information differently when making In particular, a sizable body of research shows that choices and setting prices, it should be possible to con- description invariance and procedure invariance do not struct pairs of gambles so that a person would choose hold. Preferences appear to be remarkably labile, sensitive one member of the pair but would set a higher price on to the way a choice problem is described or "framed" and the other. They demonstrated this predicted effect in sev- to the mode of response used to express the preference eral studies, including one conducted on the floor of the (Fischhoff, Slovic, & Lichtenstein, 1980; Kahneman & Four Queens Casino in Las Vegas (Lichtenstein & Slovic, Tversky, 1979; Tversky & Kahneman, 1981). These failures 1973). A typical pair of gambles in that study (shown of invariance have contributed to a new conception of judg- below) consisted of one bet with a high probability to win ment and choice in which beliefs and preferences are often a modest amount (called the P bet) and one bet with a constructed—not merely revealed—in the elicitation pro- lower probability of winning a larger payoff (called the $ cess. bet): Psychologists' claims that people do not behave ac- cording to the dictates of utility theory are particularly P bet: 11/12 chance to win 12 chips; troubling to economists, whose theories assume that peo- 1/12 chance to lose 24 chips; ple are rational in the sense of having preferences that $ bet: 2/12 chance to win 79 chips; 1 10/12 chance to lose 5 chips, are complete and transitive and in the sense that they choose what they most prefer. where each chip was worth 25 cents. Each participant This article reviews the history of research on pref- first made a choice and later indicated a minimum selling erence reversals, a line of information-processing theories price for each bet. For this pair of gambles, the two bets and experiments that has demonstrated the failure of were chosen about equally often across respondents.
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