Revealed Preference

 

The single-most-important thing to learn from economics is not supply and demand. It's how to fall in love with traffic jams.

Or as Frederic Bastiat put it ...

“All men’s impulses, when motivated by legitimate self-interest, fall into a harmonious social pattern.”

This, as it happens, is one of the most important lessons a rational economics can teach philosophers: what Bastiat called Economic Harmonies, and Ayn Rand student George Reisman calls The General Gain from the Existence of Others. That what characterises human interaction, when self-interest is properly defined, is not conflict but harmony.

That's the single-most-important thing. 

The single-most-useful thing however is something called Revealed Preference, a.k.a. Demonstrated Preference. 

In essence this means that, whatever they may say to someone wielding a clipboard, a person's preferences are deducible from how (and to what end) they have chosen to act. 

What this means in practice is that, no matter what they may purport to believe is important, their actions reveal (or demonstrate) what it is that they truly value. (That is, what they actually do act to gain and/or keep.)

Let's say someone tells you that they really, really, really want to study for a particular course, and they would love to do so, but they just can't afford it. And then you learn that they've just bought a new car, or an overseas holiday. What this reveals is that the holiday (or the new car) are more valuable to them than the course of study that might change their life. (So maybe take off at least two of their 'reallys.')

Or that they love live music, yet never go to a concert or gig. Or they tell you they love to read books -- but their home contains none, and whenever you visit the television is on. Or that they love a particular musician/writer/painter/publication, and yet lift not a finger to help them when they (say) launch a give-a-little page to keep their career and their work going . . .

You can choose your own examples. You'll have plenty. 

No, their actions don't tell you about every preference a person harbours within (I might nurse a strong desire for chocolate ice cream but, if an ice-cream vendor isn't conveniently close you may never know. Or I may love a particular musician's work, and yet play them only rarely in order to keep their few works fresh). But it does tell you if there's a difference between what they say they value, and what they really do.

In other words, it tells you more about the real person, behind their public veneer.

This, I submit, is the single-most-useful thing about economics. Because it tells us something important about real people.

How valuable is that?