Individuals can rationally pursue their interests without the preferences and marginal utilities that have long taken center stage in economics. Economics without preferences lays out the microeconomics of individual behavior, markets, and welfare when agents cannot always come to judgment. Although economic theory has claimed that self-interest requires agents to form preferences, individuals can protect themselves from harm by refusing to trade options they cannot rank. Many of the anomalies uncovered by behavioral economics – from status quo bias to loss aversion – thus have a rationality design. The absence of preferences also resolves the puzzle that classical economic agents are almost never indifferent between options whereas real-world agents often are. When individuals cannot judge trade-offs, gaps appear between the marginal valuations of gains and losses. These gaps explain why market prices can be volatile and render orthodox efficiency criteria indecisive. Policymakers will no longer be able to pin down an optimal provision of public goods. Traditional schemes that try to harness preference information to compensate agents harmed by economic change will allow virtually any decision to qualify as efficient. Governments should instead spur productivity growth, the main benefit capitalism can deliver, while shielding agents from the price upheavals that result.

The social welfare function furnishes the primary tool of normative economics: It aggregates the utilities of different agents, by summing them for example. That technique is no longer available when preferences are incomplete since agents then cannot be modeled by utility functions. Agents can however have well-defined utility functions for groups of goods, though they will not know how to weigh the functions for different groups against one another. A policymaker can aggregate these utilities across agents and thus pin down a unique normatively optimal allocation for each group of goods. Government policies are usually debated in this fashion. Rather than solve a global welfare optimization problem, governments and advocates attack each domain of policymaking separately, whether it be education or health. The chapter’s approach illustrates Sen’s criticisms of welfarism.

Agents are classically considered rational in economics if their preferences satisfy the completeness and transitivity axioms. But no matter how preferences are defined, an agent can always violate these axioms without making decisions that leave the agent worse off. If preferences are defined by an agent’s welfare judgments, those judgments can be incomplete, while if preferences are defined by an agent’s choices then sequences of those choices can be intransitive. In both cases, agents can shield themselves from harm simply by maintaining the status quo unless offered an unambiguously superior option. Agents will then display several of the anomalies discovered by behavioral economists, including the endowment effect, loss aversion, and the willingness-to-accept/willingness-to-pay disparity. These behaviors are therefore consequences rather than violations of rationality. Moreover, a single set of preference judgments can explain all of the choices an agent makes through time; the theory therefore wields predictive power. Behavioral economics in contrast courts unfalsifiability by positing a separate preference for an agent at every decision-making juncture.

Preferences are incomplete when agents cannot rank some of their options. Incompleteness can arise when individuals believe that multiple utility functions or preference relations are reasonable ways to make decisions. When these potential preferences conflict, an agent will fail to come to a bottom-line judgment. Faced with such conflicts, agents can still specify the options preferred to some reference point but that set will be kinked at that point. Agents will therefore fail to have well-defined marginal valuations for goods: they will sacrifice a unit of a good only when offered a large amount of another good in exchange. The chapter also presents a more abstract model of incomplete preferences that begins with kinks in preferred sets of options rather than deriving them from a multiplicity of potential preferences. Indecisiveness and kinks also appear in decision theory when agents are unable to identify unique subjective probabilities.

This chapter presents an operational test of indifference versus incompleteness. Indifference obtains when two alternatives have the same sets of more preferred and the same sets of less preferred options. This definition turns out to be equivalent to declaring indifference when a trade of alternatives cannot convert a harmless sequence of trades into a sequence that takes an agent from a better to a worse option. Incompleteness obtains when a trade of unranked alternatives makes a harmful sequence of trades possible. The distinction resolves the puzzle that agents frequently cannot strictly rank alternatives even though classical economic theory claims that indifference is rare. When an agent’s preferences are allowed to be incomplete, pairs of alternatives where no preference obtains will abound. Indifference on the other hand nearly disappears.