Psychological research and theories of preferential choice

When examining people’s choice behavior, it becomes apparent that it varies substantially and is often inconsistent with traditional economic models of human behavior. The present chapter summarizes essential basic behavioral findings from research on human preferential choice. It also reviews the psychological theories that have been proposed to account for puzzling findings. Traditional axiomatic approaches have assumed stable and deterministic preferences, with people’s behavior simply varying around the theories’ deterministic predictions due to unsystematic errors or “white noise”. However, when people’s inconsistencies are systematic, so that theories assuming merely unsystematic error are not sufficient to explain the variety of findings. Moreover, without an explicit error theory it appears almost impossible to separate unsystematic from systematic inconsistencies and to unravel the mechanisms that underlie the systematic inconsistencies. In this chapter we describe the two standard approaches to explaining the probabilistic character of choice behavior represented by fixed and random utility models. Second, we summarize the key empirical findings violating essential principles of utility theories. Next, we present a class of dynamic psychological theories that formalize the decision process as one of accumulating evidence to criterion. Our main theme is that to understand and explain observed behavioral (ir)regularities, we must carefully model the dynamic nature of the choice process through which beliefs, values, and preferences produce choice behavior.