The Construction of Preference

Do we really know what we want? Or must we sometimes construct our preferences on the spot, using whatever cues are available – even when these cues lead us astray? One of the main themes that has emerged from behavioral decision research during the past three decades is the view that people’s preferences are often constructed in the process of elicitation. This idea is derived from studies demonstrating that normatively equivalent methods of elicitation (e.g., choice and pricing) give rise to systematically different responses. These preference reversals violate the principle of procedure invariance that is fundamental to all theories of rational choice. If different elicitation procedures produce different orderings of options, how can preferences be defined and in what sense do they exist? This book shows not only the historical roots of preference construction but also the blossoming of the concept within psychology, law, marketing, philosophy, environmental policy, and economics. Decision making is now understood to be a highly contingent form of information processing, sensitive to task complexity, time pressure, response mode, framing, reference points, and other contextual factors.

Sarah Lichtenstein is a founder and Treasurer of Decision Research. Her fields of specialization are human judgment, decision making, and risk. She is now retired but continues as an advisor and consultant to Decision Research. She published numerous journal articles and book chapters on topics such as preference reversals and value structuring. She was a Fellow of the American Psychological Association and served on the editorial boards of Organizational Behavior and Human Performance and Acta Psychologica. She is a coauthor of Acceptable Risk (1981).

Paul Slovic is a founder and President of Decision Research and Professor of Psychology at the University of Oregon. He studies human judgment, decision making, and risk. Dr. Slovic has received the Distinguished Contribution Award from the Society of Risk Analysis, the Distinguished Scientific Contribution Award from the American Psychological Association, and the Outstanding Contribution to Science Award from the Oregon Academy of Science. He has received honorary doctorates from the Stockholm School of Economics (1996) and the University of East Anglia (2005). He is a coauthor or editor of eight books, most recently The Perception of Risk (2000) and The Social Amplification of Risk (2003).

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THE CONSTRUCTION OF PREFERENCE

Edited by
SARAH LICHTENSTEIN
Decision Research

PAUL SLOVIC
Decision Research and
The University of Oregon

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CAMBRIDGE UNIVERSITY PRESS
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© Cambridge University Press 2006

This publication is in copyright. Subject to statutory exception
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no reproduction of any part may take place without
the written permission of Cambridge University Press.

First published 2006

Printed in the United States of America

A catalog record for this publication is available from the British Library.

Library of Congress Cataloging in Publication Data

The construction of preference / edited by Sarah Lichtenstein, Paul Slovic.
p. cm.
Includes bibliographical references and index.
ISBN-13: 978-0-521-83428-5 (hardback)
ISBN-10: 0-521-83428-7 (hardback)
ISBN-13: 978-0-521-54220-3 (pbk.)
ISBN-10: 0-521-54220-0 (pbk.)
1. Choice (Psychology) I. Lichtenstein, Sarah, 1933– II. Slovic, Paul, 1938– III. Title.
BF611.C65    2006
153.8^′3 – dc22    2005035966

ISBN-13 978-0-521-83428-5 hardback
ISBN-10 0-521-83428-7 hardback

ISBN-13 978-0-521-54220-3 paperback
ISBN-10 0-521-54220-0 paperback

Cambridge University Press has no responsibility for
the persistence or accuracy of URLs for external or
third-party Internet Web sites referred to in this publication
and does not guarantee that any content on such
Web sites is, or will remain, accurate or appropriate.

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We dedicate this book to
our grandchildren:

James Loving Lichtenstein
Lela Loving Lichtenstein
Jacinto Slovic
Spencer Slovic
Cameron Slovic
Oblio Mathai

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The discussion of the meaning of preference and the status of value may be illuminated by the well-known exchange among three baseball umpires. “I call them as I see them,” said the first. “I call them as they are,” said the second. The third disagreed, “They ain’t nothing till I call them.” Analogously, we can describe three different views regarding the nature of values. First, values exist – like body temperature – and people perceive and report them as best they can, possibly with bias (I call them as I see them). Second, people know their values and preferences directly – as they know the multiplication table (I call them as they are). Third, values or preferences are commonly constructed in the process of elicitation (they ain’t nothing till I call them). The research reviewed in this article is most compatible with the third view of preference as a constructive, context-dependent process. (Tversky & Thaler, 1990, p. 210)

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Contents

		Contributors	page xi
		Preface	xv
		Cass R. Sunstein
		Acknowledgments	xvii
I  INTRODUCTION
1		The Construction of Preference: An Overview	1
		Sarah Lichtenstein and Paul Slovic
II  PREFERENCE REVERSALS
2		Relative Importance of Probabilities and Payoffs in Risk Taking	41
		Paul Slovic and Sarah Lichtenstein
3		Reversals of Preference Between Bids and Choices in Gambling Decisions	52
		Sarah Lichtenstein and Paul Slovic
4		Response-Induced Reversals of Preference in Gambling: An Extended Replication in Las Vegas	69
		Sarah Lichtenstein and Paul Slovic
5		Economic Theory of Choice and the Preference Reversal Phenomenon	77
		David M. Grether and Charles R. Plott
III  PSYCHOLOGICAL THEORIES OF PREFERENCE REVERSALS
6		Contingent Weighting in Judgment and Choice	95
		Amos Tversky, Samuel Sattath, and Paul Slovic
7		Cognitive Processes in Preference Reversals	122
		David A. Schkade and Eric J. Johnson
8		The Causes of Preference Reversal	146
		Amos Tversky, Paul Slovic, and Daniel Kahneman
9		Preference Reversals Between Joint and Separate Evaluations of Options: A Review and Theoretical Analysis	163
		Christopher K. Hsee, George Loewenstein, Sally Blount, and Max H. Bazerman
10		Attribute-Task Compatibility as a Determinant of Consumer Preference Reversals	192
		Stephen M. Nowlis and Itamar Simonson
11		Preferences Constructed From Dynamic Microprocessing Mechanisms	220
		Jerome R. Busemeyer, Joseph G. Johnson, and Ryan K. Jessup
IV  EVIDENCE FOR PREFERENCE CONSTRUCTION
12		Construction of Preferences by Constraint Satisfaction	235
		Dan Simon, Daniel C. Krawczyk, and Keith J. Holyoak
13		“Coherent Arbitrariness”: Stable Demand Curves Without Stable Preferences	246
		Dan Ariely, George Loewenstein, and Drazen Prelec
14		Tom Sawyer and the Construction of Value	271
		Dan Ariely, George Loewenstein, and Drazen Prelec
15		When Web Pages Influence Choice: Effects of Visual Primes on Experts and Novices	282
		Naomi Mandel and Eric J. Johnson
16		When Choice Is Demotivating: Can One Desire Too Much of a Good Thing?	300
		Sheena S. Iyengar and Mark R. Lepper
V  THEORIES OF PREFERENCE CONSTRUCTION
17		Constructive Consumer Choice Processes	323
		James R. Bettman, Mary Frances Luce, and John W. Payne
18		Decision Making and Action: The Search for a Dominance Structure	342
		Henry Montgomery
19		Pre- and Post-Decision Construction of Preferences: Differentiation and Consolidation	356
		Ola Svenson
20		Choice Bracketing	372
		Daniel Read, George Loewenstein, and Matthew Rabin
21		Constructing Preferences From Memory	397
		Elke U. Weber and Eric J. Johnson
VI  AFFECT AND REASON
22		Reason-Based Choice	411
		Eldar Shafir, Itamar Simonson, and Amos Tversky
23		The Affect Heuristic	434
		Paul Slovic, Melissa L. Finucane, Ellen Peters, and Donald G. MacGregor
24		The Functions of Affect in the Construction of Preferences	454
		Ellen Peters
25		Mere Exposure: A Gateway to the Subliminal	464
		Robert B. Zajonc
26		Introspecting About Reasons Can Reduce Post-Choice Satisfaction	471
		Timothy D. Wilson, Douglas J. Lisle, Jonathan W. Schooler, Sara D. Hodges, Kristen J. Klaaren, and Suzanne J. LaFleur
VII  MISWANTING
27		New Challenges to the Rationality Assumption	487
		Daniel Kahneman
28		Distinction Bias: Misprediction and Mischoice Due to Joint Evaluation	504
		Christopher K. Hsee and Jiao Zhang
29		Lay Rationalism and Inconsistency Between Predicted Experience and Decision	532
		Christopher K. Hsee, Jiao Zhang, Frank Yu, and Yiheng Xi
30		Miswanting: Some Problems in the Forecasting of Future Affective States	550
		Daniel T. Gilbert and Timothy D. Wilson
VIII  CONTINGENT VALUATION
31		Economic Preferences or Attitude Expressions? An Analysis of Dollar Responses to Public Issues
		Daniel Kahneman, Ilana Ritov, and David A. Schkade
32		Music, Pandas, and Muggers: On the Affective Psychology of Value	594
		Christopher K. Hsee and Yuval Rottenstreich
33		Valuing Environmental Resources: A Constructive Approach	609
		Robin Gregory, Sarah Lichtenstein, and Paul Slovic
IX  PREFERENCE MANAGEMENT
34		Measuring Constructed Preferences: Towards a Building Code	629
		John W. Payne, James R. Bettman, and David A. Schkade
35		Constructing Preferences From Labile Values	653
		Baruch Fischhoff
36		Informed Consent and the Construction of Values	668
		Douglas MacLean
37		Do Defaults Save Lives?	682
		Eric J. Johnson and Daniel G. Goldstein
38		Libertarian Paternalism Is Not an Oxymoron	689
		Cass R. Sunstein and Richard H. Thaler
		References	709
		Index	775

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Contributors

Dan Ariely  is the Luis Alvarez Renta Professor of Management Science at the Sloan School of Management and at the Media Laboratory at MIT

Max H. Bazerman  is the Jesse Isidor Straus Professor of Business Administration at Harvard Business School

James R. Bettman  is the Burlington Industries Professor of Marketing at The Fuqua School of Business, Duke University

Sally Blount  is the Dean of the Undergraduate College and the Abraham L. Gitlow Professor of Management at the New York University Stern School of Business

Jerome R. Busemeyer  is a Professor of Psychology and Cognitive Science at Indiana University

Melissa L. Finucane  is a Research Investigator for Kaiser Permanente

Baruch Fischhoff  is the Howard Heinz University Professor in the Department of Social & Decision Sciences and the Department of Engineering and Public Policy, Carnegie Mellon University

Daniel T. Gilbert  is the Harvard College Professor of Psychology at Harvard University

Daniel G. Goldstein  is an Assistant Professor of Marketing at the London Business School

Robin Gregory  is a Senior Researcher at Decision Research

David M. Grether  is a Professor of Economics at the California Institute of Technology

Sara D. Hodges  is an Associate Professor of Psychology at the University of Oregon

Keith J. Holyoak  is a Professor of Psychology at the University of California, Los Angeles

Christopher K. Hsee  is the Theodore O. Yntema Professor of Behavioral Sciences and Marketing at the University of Chicago Graduate School of Business

Sheena S. Iyengar  is the Sanford C. Bernstein Associate Professor of Leadership and Ethics at Columbia University

Ryan K. Jessup  is a Ph.D. candidate in psychology and cognitive science at Indiana University, Bloomington

Eric J. Johnson  is the Norman Eig Professor of Business at Columbia Business School, Columbia University

Joseph G. Johnson  is an Assistant Professor of Psychology at Miami University

Daniel Kahneman  is the Eugene Higgins Professor of Psychology and Public Affairs at the Woodrow Wilson School, Princeton University

Kristen J. Klaaren  is an Associate Professor of Psychology at Randolph-Macon College

Daniel C. Krawczyk  is a Postdoctoral Fellow at the University of California, Berkeley

Suzanne J. LaFleur  is a Research Scientist and Adjunct Assistant Professor at the School of Family Studies, University of Connecticut

Mark R. Lepper  is Albert Ray Lang Professor of Psychology at Stanford University

Sarah Lichtenstein  is a Senior Researcher at Decision Research

Douglas J. Lisle  is Director of Research for TrueNorth Health Center

George Loewenstein  is a Professor of Economics and Psychology at Carnegie Mellon University

Mary Frances Luce  is Professor of Marketing at The Fuqua School of Business, Duke University

Donald G. MacGregor  is President and Senior Scientist at MacGregor-Bates, Inc.

Douglas MacLean  is a Professor of Philosophy at the University of North Carolina, Chapel Hill

Naomi Mandel  is an Assistant Professor of Marketing at the W.P. Carey School of Business, Arizona State University

Henry Montgomery  is a Professor of Cognitive Psychology at Stockholm University

Stephen M. Nowlis  is the AT&T Research Professor of Marketing at the W.P. Carey School of Business, Arizona State University

John W. Payne  is the Joseph J. Ruvane, Jr., Professor of Management and Marketing, Professor of Psychology, and Deputy Dean of The Fuqua School of Business, Duke University

Ellen Peters  is a Research Scientist at Decision Research

Charles R. Plott  is the Edward S. Harkness Professor of Economics and Political Science at the California Institute of Technology

Drazen Prelec  is a Professor of Management Science at the Massachusetts Institute of Technology

Matthew Rabin  is the Edward G. and Nancy S. Jordan Professor of Economics at the University of California, Berkeley

Daniel Read  is a Professor of Behavioral Economics at the Durham Business School, University of Durham

Ilana Ritov  is an Associate Professor in the Department of Psychology and School of Education, The Hebrew University

Yuval Rottenstreich  is an Associate Professor of Management at The Fuqua School of Business, Duke University

Samuel Sattath  works at the Center for Rationality, The Hebrew University

David A. Schkade  is the Jerome Katzin Endowed Chair in the Rady School of Management, University of California, San Diego

Jonathan W. Schooler  is a Professor of Psychology and the Canada Research Chair in Social Cognitive Science at the University of British Columbia

Eldar Shafir  is a Professor of Psychology and Public Affairs at Princeton University

Dan Simon  is a Professor of Law at the University of Southern California

Itamar Simonson  is the Sebastian S. Kresge Professor of Marketing at the Stanford Graduate School of Business

Paul Slovic  is the President of Decision Research and a Professor of Psychology at the University of Oregon

Cass R. Sunstein  is the Karl N. Llewellyn Distinguished Service Professor of Jurisprudence at the Law School and the Department of Political Science, University of Chicago

Ola Svenson  is a Professor of Psychology and the Director of the Risk Analysis, Social and Decision Unit at Stockholm University

Richard H. Thaler  is the Robert P. Gwinn Distinguished Service Professor of Behavioral Science and Economics at the Graduate School of Business, University of Chicago

Amos Tversky  (1937–1996) was the Davis Brack Professor of Behavioral Sciences at Stanford University

Elke U. Weber  is a Professor of Psychology and Management and the Jerome A. Chazen Professor of International Business at Columbia University

Timothy D. Wilson  is the Sherrell J. Aston Professor of Psychology at the University of Virginia

Yiheng Xi  is a student in the Department of Management of Organizations, Hong Kong University of Science and Technology

Frank Yu  is a Ph.D. candidate at the Graduate School of Business at the University of Chicago

Robert B. Zajonc  is a Professor of Psychology at Stanford University

Jiao Zhang  is a Ph.D. candidate in behavioral science at the Graduate School of Business, University of Chicago

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Preface

Cass R. Sunstein

According to the most prominent view in contemporary social science, human beings “have” preferences, and their choices are a product of those preferences. If people are going to select an ice cream flavor, or a television set, or a political candidate, they will consult a kind of internal preference menu, and their choices will result from that consultation. This approach to human behavior dominates economics; it also plays a large role in many other fields, including political science, law, and sociology.

   But are people’s preferences really elicited, rather than constructed, by social situations? This is an empirical question. Over the last decades, a great deal of progress has been made in answering it. Sometimes people prefer A to B and B to A, depending on how the options are framed. If people are told, “Of those who undergo this medical procedure, 90% are still alive after 5 years,” they are far more likely to agree to the procedure than if they are told, “Of those who undergo this procedure, 10% are dead after 5 years.” Framing matters for ordinary consumer choices as well as for unusual medical decisions. Most consumers might prefer a small television to a medium-sized one when choosing among the two, but if a large television is added to the set of options, many consumers will favor the medium-sized one over the small one. The same point applies to jury determinations. Other things being equal, a jury is far more likely to convict a defendant on a charge if that charge can be characterized as falling in the middle of a set of possibilities.

   Or consider questions from the important domain of regulatory policy: Do ordinary people “have” preferences about their own willingness to pay to eliminate a mortality risk of 1/100,000 or to save members of an endangered species? It turns out that people’s decisions are greatly affected by amounts that are initially mentioned to them – so much so as to make it possible for analysts to “construct” an extraordinarily wide range of possible amounts.

   According to standard economic theory, default rules shouldn’t much matter to what people will do, at least if they can easily contract around those rules; people who “prefer” to contract around default rules will do exactly that. But growing evidence suggests that default rules, both private and public, help to construct people’s preferences. Suppose that an employer automatically assumes that employees want to devote a certain percentage of their wages to savings in a retirement plan, while allowing employees to “opt out” of the plan if they do so explicitly. If the employer so assumes, there will be far more participation in retirement plans than if the employer assumes that employees do not want to participate in that plan unless they say otherwise.

   The point is immensely important. If default rules help to construct preferences, then the standard analysis of such rules, in both economics and law, turns out to be badly mistaken.

   All of these examples suggest that if their goal is to predict human behavior, analysts will blunder if they assume that people have preferences that predate framing, default rules, and social interactions. Sometimes preferences are surprisingly labile. This point also unsettles the widely held view that the role of private and public institutions is to “respect” or “satisfy” preferences. If preferences are constructed, then institutions cannot refer to acontextual preferences at all.

   To be sure, there are limits to the process of construction. Some televisions just won’t sell; most of the time, people are unlikely to want 80% of their wages to go into savings. It would be an overstatement to say of preferences, as Gertrude Stein said of Oakland, that “there is no there there.” But frequently what is there is far less fixed, and far more malleable, than conventional theory predicts.

   This book collects decades of work on central issues involving the construction of preferences. It includes the seminal papers on that topic; it also offers newer work whose implications have yet to be fully unpacked. The result is a fundamental rethinking of central issues in social science, with intriguing lessons for many questions about human behavior and about the role of human institutions in helping to produce it.

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Acknowledgments

We are indebted to many people who, over the course of almost half a century, contributed to the construction of preference and the construction of this book. Ward Edwards built the foundation for the field of Behavioral Decision Theory and introduced us to this field and to each other. Paul Hoffman, founding director of the Oregon Research Institute, provided a stimulating research environment in which to conduct our early experiments on preference reversals. Amos Tversky and Danny Kahneman encouraged our work and contributed to it in many important ways, as did Baruch Fischhoff, who helped us think more broadly about “labile values.”

   We are particularly grateful to the many fine researchers who, with stunning ingenuity, transformed the study of preference reversals into the study of constructed preferences. A sampling of their contributions is included in this book.

   We also thank the economists who took our early work seriously enough to criticize it (and sometimes even to attack it). Their skeptical views motivated much of the subsequent psychological research and made it better. The challenges posed by David Grether and Charles Plott were particularly important in this regard.

   In developing our ideas on preference reversals and preference construction, we have been supported intellectually and socially by our colleagues at Oregon Research Institute (Lew Goldberg, Leonard Rorer, Robyn Dawes, and Gordon Bechtel) and Decision Research (Robin Gregory, Ellen Peters, Melissa Finucane, Don MacGregor, Terre Satterfield, Robert Mauro, C. K. Mertz, Jim Flynn, and Tony Leiserowitz). Administrative support for this book has been provided by Toni Daniels and Kay Phillips. Special thanks go to Ellen Peters, Robin Gregory, John Payne, and Chris Starmer for their advice on our introductory chapter and to the National Science Foundation, whose Decision Making, Risk, and Management Science Program has provided essential funding for much of the research on preference construction by us and others.¹

   Finally, we were sustained in the daunting task of acquiring and assembling the 38 chapters of this book by the steady competence and enthusiasm of Leisha Wharfield, ably assisted by Austin Kaiser. We thank them. We also thank Peter Katsirubas of Techbooks for his help and his patience in the final stages of book preparation.

Sarah Lichtenstein
Paul Slovic
Eugene, Oregon
May 2006