This book, edited by Daniel Kahneman and Amos Tversky, presents research from economists and psychologists on how people make choices, form preferences, and define welfare. It examines how economists use preferences to explain and predict behavior, while also critiquing attempts to define welfare solely through preferences or to define preferences through choices or self-interest. The work clarifies the relationship between rational choice theory and philosophical understandings of human action, and it explores how reason and emotion influence preference formation and modification.
The book draws on Kahneman and Tversky's foundational work, including "Prospect Theory," to understand experienced utility and objective happiness. It considers the application of preference concepts in economics, everyday language, psychology, and philosophical discussions of morality. Readers gain insight into the complexities of preference, value, choice, and welfare, and the theoretical underpinnings used in economics and psychology.
Key concepts
- Prospect Theory — A theory describing how people choose between probabilistic alternatives involving risk, where the probabilities of outcomes are known.
- Experienced Utility — The subjective feeling of pleasure or displeasure that accompanies an experience.
- Objective Happiness — A measure of happiness based on external indicators or objective criteria, as opposed to subjective feelings.
- Preference Formation — The psychological and cognitive processes by which individuals develop their likes and dislikes and their valuation of different options.