1. What assumptions of traditional preference theory have been attacked by behavioral economics?

Traditional economics preference theory is attacked by behavioral economics in the following aspects:

1. Preference for exoticism

The preference theory of traditional economics: preference = utility, and preference is exogenous.

Although there are some restrictions, economic theory basically regards desire (preference is fixed) as desire. This is an example of division of labor. Economists don't discuss the formation of desire, which is the field of psychologists. Personal hobbies or preferences are considered exogenous or established, that is, outside the system.

Preference theory of behavioral economics: preference is not equal to utility, and preference is endogenous.

Preference is the cause of behavior, that is, the personal attribute used to explain the action taken in a given situation. Including: taste, habits, emotions and other inner reactions, individual analysis of the situation, commitment, social norms, psychological tendencies, emotional relations with others. Behavioral economics believes that preference is endogenous.

2. Process invariance

Traditional economics preference theory: preference is objective and stable; Preference does not change the process invariance of different inductive methods.

Preference theory of behavioral economics: preference is subjectively unstable; Preference is different under different induction methods. When the induction fails, preference is influenced by the significance hypothesis, which is the main decision-making basis.

3. Independence of unrelated substitutes

Traditional economics preference theory: the preference for one thing will not change the independence of an unrelated substitute because of the existence of other things.

Preference theory of behavioral economics: when a person makes a decision, he is often influenced by the "relevance" of a decision before this decision, which makes the final preference choice biased or even reversed.

4. Classical indifference curve

Traditional economics preference theory: the marginal substitution rate of indifference curves in different directions is the same, and any two indifference curves do not intersect.

Preference theory of behavioral economics: indifference curve will have different marginal substitution rates in different directions. When indifference curves intersect, the preference at the intersection is reversible.