Revealed Preferences

People don't want what they say they want.

There is no way to talk about revealed preferences without calling people out. The very concept of revealed preferences is a call-out, because revealed preferences show that what we say we want does not always align to our actual actions.

The best illustration of revealed preferences I’ve heard comes from a friend who ran a vending machine business in several office buildings. His vending machines were selling well, but the workers in the office told him they wanted healthier food. He listened and then changed his vending machines from stocking soda and candy to healthy snacks. Sales plummeted. When no one bought the health food, he switched back to sugary snacks. Sales returned, but the office workers complained that the health food was gone. My friend was incensed. Why were they asking for health food when no one bought it?

The stated preference of those office workers was health food, but their revealed preference was sugary snacks. While they might say they wanted to eat healthy, their actions showed that what they actually wanted was the immediate gratification of junk food.

Revealed preferences are what we actually want, as revealed by our actions, rather than what we say want. Once you understand the concept of revealed preferences, you will see it everywhere. People say they want to be rich, but don’t save or invest their money. They say they want to be in shape, but don’t work out. They say they want a relationship but run from intimacy. They want to write that novel, start that business, leave that abuser, but just never quite do.

If you want to know your own revealed preferences, take an honest inventory of your time and actions. When you do, turn off the commentary. When most people look at their own actions, they have a layer of excuses and rationalizations applied to it. “I ate a candy bar, but I was really tired and ate healthy the rest of the week, so I earned it.” Stop. Turn off the commentary. We are just looking at the actions. “I ate a candy bar.” The end. No commentary needed.

Once you’ve taken inventory, you can then look at the reasons. For example, in my own life, I’ve noticed that I often value time and energy over healthy eating. If eating healthy would cost me a half hour and take me away from my work, I just grab whatever is easiest. Knowing that I actually value time and energy over eating healthy means that if I want to eat healthy, it helps to meal-prep and cook a month of healthy meals I can eat without having to cook every time I’m hungry.

I’m using money and health examples to talk about revealed preferences because everyone understands those and the results are physically visible. However, the contradiction between revealed and stated preferences is often less visible. The reason people often don’t see their own revealed preferences is that it challenges their self-image. If someone’s actions don’t match their words, then they might not be who they say they are. That can be painful to the ego.

Anyone trying to create change or sell something needs to understand revealed preferences. That includes business and activism. If everyone’s actual preferences matched their stated preferences, many major industries ranging from fossil fuels to porn would disappear. No one would lie, bully, steal, or cheat because no one has a stated preference for those things. Most activist causes would be solved because few have a stated preference for injustice. Obviously, we do not live in a world made by our stated preferences, but by our revealed ones.

This mistake many activists make is that they measure their success through stated rather than revealed preferences. If you present an argument or idea and the person says they agree or support you, but takes no action, then it didn’t work. Their stated preference might say that it was a good argument, but their revealed preference is that it didn’t move them to action. Whether or not the argument was good, it wasn’t useful. Many activists mistakenly believe that these “good” arguments will win rather because they get a positive response, rather than those that might trigger some people, but result in actual action.

Businesses don’t have that luxury. Either you make the sale or you don’t. If someone tells you that you have a great product, but doesn’t buy one, it doesn’t matter. Compliments don’t pay the bills. On the flipside, there are multi-million dollar businesses that everyone says they hate. Revealed preferences would suggest that the public doesn’t hate them as much as they claim they do. If you’re running a business, you have to look at what your customers actually buy, rather than just what they say online.

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