Preference has tremendous power because it guides all transactions in a market economy. The preferences of individuals govern all economic activity. You have power because of your preferences. Choose them with care.
For the most part we take our preferences for granted. After all, they are ours and ours alone. We get to choose whether we like yellow or blue. We get to choose whether we like hamburgers or fish sandwiches. And we get to choose whether we like iPads or Androids. But, those preferences don’t seem to affect anyone else.
Your preferences, however, play a vitally important role in your life and the lives of others. In your life those preferences determine what you wear, what you eat, where you live, and whom you choose to have as friends. When you go to the grocery store it matters to you whether you prefer oranges or bananas. It matters to you whether you buy raisin cookies or just raisins. How you act based on your preferences, of course, makes a difference in your life. But, what difference does it make in the lives of other people?
You don’t share preferences with other people. Your preferences belong to you only. You may have preferences similar to others, but you have chosen them for yourself. So again, what difference do your preferences make to other people?
Would you find it difficult to believe that market systems developed based on the preferences of many many individuals. The preferences of individuals represent the sole source for what we refer to as economic value. The preferences of individuals — or their subjective value — provide the basis for the value of anything bought, sold, or exchanged in a market economy.
Thus, the next time you or someone else makes a statement about the value or worth of the good offered for sale on the market, ask “In whose opinion?” Nothing has any economic value unless someone else prefers it to either what they have or what they have an opportunity to acquire.
Preferences have tremendous power. All economic activity occurs because of people acting on their preferences. In this blog, I will return frequently to the importance of preferences for two reasons:
First, because of its importance in effecting every economic activity; and
Second, because the truth of subjective value turns most economic models on their heads.