A readerÂ recently forwarded me a paper given by Australia Institute Director Clive Hamilton to a Productivity Commission retreat (Clive has kindly given me permission to post the paper). Here’s the gist of it:
The core of my argument draws on the distinction between first and second-order preferences. First-order preferences are the ones mainstream economics recognises, the ones that are revealed by our behaviour in the marketplace. Second-order preferences are the preferences we have about our own preferences. This has been explored by US economist David George in a series of papers and a book titled Preference Pollution (University of Michigan Press, 2001).Â
George gives the example of his consumption of fast food. As he sits eating a greasy hamburger he is wishing that he was eating something healthier. His second-order preference is a preference for his food preferences. It is not just another preference but a deeper order of preference. One reason for his first-order preference prevailing is the circumstances under which we make decisions. Snap decisions are more likely to follow first-order preferences while more considered judgments are more likely to see us following our second-order preferences.
My general view is that this is an interesting theory, but because it’s entirely non-tractable, it’s difficult to see how we should allow it to inform our work. Clive tells stories in which our second-order preferences are more altruistic than our first-order preferences. In his case, I’m sure that’s true. But equally, I could tell stories in which people’s second-order preferences are more selfish than their first-order preferences. If second-order preferences are never revealed, the two theories are indistinguishable.