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Cambridge Journal of Economics 28:619-633 (2004)
Cambridge Journal of Economics, Vol. 28, No. 4, © Cambridge Political Economy Society 2004; all rights reserved

The market for preferences

Peter E. Earl and Jason Potts*

Address for correspondence: School of Economics, University of Queensland, Brisbane, QLD4072, Australia; email: p.earl{at}economics.uq.edu.au, j.potts{at}economics.uq.edu.au

Learning processes are widely held to be the mechanism by which boundedly rational agents adapt to environmental changes. We argue that this same outcome might also be achieved by a different mechanism, namely specialisation and the division of knowledge, which we here extend to the consumer side of the economy. We distinguish between high-level preferences and low-level preferences as nested systems of rules used to solve particular choice problems. We argue that agents, while sovereign in high-level preferences, may often find it expedient to acquire, in a pseudo-market, the low-level preferences in order to make good choices when purchasing complex commodities about which they have little or no experience. A market for preferences arises when environmental complexity overwhelms learning possibilities and leads agents to make use of other people's specialised knowledge and decision rules.

Key Words: Preferences • Learning • Knowledge • Bounded rationality • Choice theory • Consumer behaviour • Evolutionary economics

JEL classifications: B52, D0, D8

Manuscript received June 6, 2001; final version received September 13, 2002.


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