Needs and preferences
as decision factors

Quest for satisfactions and economic utility

Needs / wants are linked to expected satisfactions.
Every person has its own scale of preferences and hierarchy
of needs.

In economic activities, this range of personal motivators
translates into the monetary notion of "utility".

bread? Or gem?

Is what I want  ...what I really need?
And is what I need, ...what I really want?

Here are questions that make aspirin sell!

Needs

Definition

Let us give the broadest definition, as what is called "needs"
goes much further than basic necessities.
A person usually considers, more or less strongly, as a need any
  • desire, appetite, expected  pleasure satisfaction, want, wish,
  • pain  dissatisfaction and lack,
  • more generally, motive, drive drive,
felt by that person.

To this hotpot, we can add any incentive the person is not conscious of,
but that can intervene in its behaviors. The hidden part of the brain !
=> That makes a lot of needs / wants!
        In that extensive sense, human needs have no limit.

Can we objectively sort needs?

Not easy to sort all those needs, and a bit risky and pretentious to
decide which ones are respectable and which ones could be futile
or even dreadful.

Economists for example have to consider every kind of behavior
that play a part in the economy, as to start with reality is the only
scentific approach.

Some difference is usually made anyway
  • By moralists,
with some subjectivity, and sometimes dogmatism,
between good and unethical needs.
  • By lawyers
They have their list of what it is not allowed to do, the rest
is seen  as permitted)
  • By economists,
between, whatever the reservations mentioned above
about reality
vs. norms,
* basic simple needs
(i.e. food...)
* higher more sophisticated ones (i.e artistic ones),

Those last "deep seated" ones are here since the dawn of
mankind, they are even in some ways specific to mankind.

On the other hand, they do not belong fully to the
econsector economic realm, if we reduce it to the production -
allocation - distribution system it entails.

Abraham Maslow theorized this under the form of a pyramid of
needs
.
  • In theory a person would experience those higher needs only after
its basic ones are sated.  First the sauerkraut, then the Opera.
  • In practice, this hierarchy is not so clear cut.
Various needs might interfere.
Not easy to attribute a move to a precise one


Also the hierarchy might differ from one person to the other,
It can even vary for the same person in different situations.
This leads to a specific aspect described below: person individual
preferences.

Preferences

Coffee or tea?

People classify consciously or unconsciously their needs, in other words
they have preferences.

The order of preference
  - differs from a person to the other.
  - also can be changing and fuzzy.

=>
There is an ambiguity here that raises three issues:

1) are preferences usually transitive (see below)?

2) are intentions and goals stable and conscious?

3) what differences between
     * Stated preference what a person declares as its such (for
        example happiness before money)
     * Revealed preference : what it does in practice ?

1) Preference transitivity...

Preferences are said to be transitive, which means that:
* If somebody prefers A to B
*
and also prefers B to C,
*
he/she normally prefers A to C
But in real life it is not always the case.
I might prefer oranges to apples and prefer apples to grapes but I
might prefer grapes to oranges. And what about preferring apples
to sardines but sardines to oranges?

Another thing is that somebody's preferences might differ according
to the type of activity pursued, or of situation, and might change from
one day to another.
Preference reversals are possible :
You might be risk averse in one case, risk taker in another one

2) Intentions and goals.

Some preferences or tastes might be particularly conscious or even
clearly stated: we enter here the realm of intentions,
goal goals,
objectives
that are crucial
decision decision making factors.
Many people "have an agenda". It can motivate them to act
even in the lack
of external events that work as stimuli.
This is a dent in the behaviorist theory that focuses on a
"stimulus => reaction" process.
Other preferences are less consciously stated and pursued but might
anyway haunt the unconscious self, influence decisions, and even be
in conflict with the stated goals.

The economic side:
utility and ophelimity

Various human needs can be satisfied through economic activities,
notably via consumption.
We can call them "economic needs".

Actually, economics is an area of knowledge that studies how
resources
(production and production means...), which are
limited
, are alloted in front of  potentially unlimited needs.

A) Economic utility

Is it worth the price price?
Economic utility is, to simplify things a bit, a number that shows
the personal monetary value somebody attributes to something
(product, service...) that satisfies a need and can be obtained only
in exchange against something else or against money.

This value is linked to
  • the person's preferences between various expected satisfactions,
  • and also of course its own financial possibilities
Economic utility, as a more or less conscious monetary value,
is a
criterion a person uses to decide to hire, purchase or sell things,
services, assets, hours of work,
by comparing that personal
number to the price asked or offered
(market price, price list,
price proposal...).

The economic utility theory considers that people have a precise idea
about that number. This is truly ...theoretical.
=> In reality people have often a rather fog fuzzy
        and  instinctive instinctive  idea
on how to value their utility.

Also many
behavioral biases, such as cognitive flaws, emotional
distortions and automatic / unconscious responses can distort or
overcome their utility perception.

B) Ophelimity

Some see, on the basis of their own criteria, a difference between what
people want and what they really "need" with a a supposedly rational
approach
.
In their normative mind they consider that value would be based on
some "objective" usefulness and that rationality and morality should
be the criteria to justify utility.
This philosophical approach is legitimate ...to some extent.
All along History, there many fundamentalists condemned
about every satisfaction, seeing in it the hand of the devil
or a crime against the common good (see below), of course
with their own definition of those notions.
This approach cannot be called fully objective as it brings a subjective
categorization that would not really fit economic reality and
reasoning
.
Actually, people might consider, either legitimately or perversely, as
desirable certain things that others would consider futile or even
harmful for them or for other people.

But who is right in such subjective appreciations?

In this sense, a more general appellation for all personal needs or
values, that skirts the rational or moral undertone proper to the
utility word, is ophelimity (or desirability).

C) Common good, group social utility

Some needs are considered common to everybody, an idea that makes
some political philosophers propose that a high authority enforce their
general application and procurement over individual freedom.

This is another normative approach.
However understandable could be its motive (although a domination
tendency might be behind),
it can also be
slippery as a lot of subjectivity
might also intervene, and as, in practice, perverse effects can interfere.

What kind of "common good" or "social utility" should drive the political
system, and to what extent, is the source of an
heated debate that goes
beyond what this article is about.
A topic for your Tuesday night philosophical café!

Reference and further readings

More details on those various notions are found in the
Behavioral finance glossary
Notably the
needs, preferences and utility articles

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M.a.j. / updated : 09 July 2015
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