4 - Decision making and language

Summary

Introduction

The starting point of this chapter is the view that decision makers deliberating before making a choice often verbalize their considerations. It follows that the “language” a decision maker uses to verbalize his preferences restricts the set of preferences he may hold. Thus, interesting restrictions on the richness of the decision maker's language can yield interesting restrictions on the set of an economic agent's admissible preferences.

Before we proceed to the main investigation, some background is required. An economic agent in a standard economic model possesses a preference relation defined on a set of relevant consequences. The preferences provide the basis for the systematic description of his behavior as well as for welfare analysis. We usually assume that an economic agent is “rational” in the sense that his choice derives from an optimization given his preferences. Given that we adopt the rational man paradigm, the other constraints imposed upon an economic agent's preferences are often weak. For example, in general equilibrium theory, we usually only impose conditions such as monotonicity, continuity, and quasi-convexity. On the other hand, we restrict the discussion in many economic studies to some family of preference relations which share a simple utility representation. Several questions thus arise: What is the reason that we do not further restrict the set of preferences in the many cases where generality prevents us from obtaining stronger results?