ⓘ Preference


ⓘ Preference

In psychology, economics and philosophy, a preference is a technical term usually used in relation to choosing between alternatives. For example, someone prefers A over B if they would rather choose A than B.

Preference can also be used in insolvency terms.


1. Psychology

In psychology, preferences refer to an individuals attitude towards a set of objects, typically reflected in an explicit decision-making process Lichtenstein & Slovic, 2006. The term is also used to mean evaluative judgment in the sense of liking or disliking an object which is the most typical definition employed in psychology. However, it does not mean that a preference is necessarily stable over time. Preference can be notably modified by decision-making processes, such as choices, even unconsciously. Consequently, preference can be affected by a persons surroundings and upbringing in terms of geographical location, cultural background, religious beliefs, and education. These factors are found to affect preference as repeated exposure to a certain idea or concept correlates with a positive preference.


2. Economics

In economics and other social sciences, preference refers to the set of assumptions related to ordering some alternatives, based on the degree of happiness, satisfaction, gratification, enjoyment, or utility they provide, a process which results in an optimal "choice" whether real or imagined. Although economists are usually not interested in choices or preferences in themselves, they are interested in the theory of choice because it serves as a background for empirical demand analysis.

The so-called Expected Utility Theory EUT, which was introduced by John von Neumann and Oskar Morgenstern in 1944, explains that so long as an agents preferences over risky options follow a set of axioms, then he is maximizing the expected value of a utility function. This theory specifically identified four axioms that determine an individuals preference when selecting an alternative out of a series of choices that maximizes expected utility for him. These include Completeness, Transitivity, Independence, and, Continuity.


3. Other

"Preference" may also refer to non-choices, such as genetic and biological explanations for ones preference. Sexual orientation, for example, is no longer considered a sexual preference by most individuals, but is debatable based on philosophical and/or scientific ideas.


4. Insolvency

In Insolvency, the term can be used to describe when a company pays a specific creditor or group of creditors. From doing this, that creditors is made better off, than other creditors. After paying the preferred creditor, the company seeks to go into a formal insolvency like an administration or liquidation. There must be a desire to make the creditor better off, for them to be a preference. If the preference is proven, legal action can occur. It is a wrongful act of trading. Disqualification is a risk. Preference arises within the context of the principle maintaining that one of the main objectives in the winding up of an insolvent company is to ensure the equal treatment of creditors. The rules on preferences allow paying up their creditors as insolvency looms, but that it must prove that the transaction is a result of ordinary commercial considerations. Also, under the English Insolvency Act 1986, if a creditor was proven to have forced the company to pay, the resulting payment would not be considered a preference since it would not constitute unfairness.

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