A preference is a technical term in psychology, economics and philosophy 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.
In psychology, preferences refer to an individual's 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 (e.g., Scherer, 2005) 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 (Brehm, 1956; Sharot, De Martino, & Dolan, 2009), even unconsciously (see Coppin, Delplanque, Cayeux, Porcherot, & Sander, 2010). Consequently, preference can be affected by a person's 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.
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 agent's 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 individual's preference when selecting an alternative out of a series of choices that maximizes expected utility for him. These include Completeness, Transitivity, Independence, and, Continuity.
"Preference" may also refer to non-choices, such as genetic and biological explanations for one's 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.
In Insolvency, the term can be used to describe when a company pays a specific creditor or group of creditors. From doing this, that creditor(s) 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.
- Brehm, J.W. (1956). Post-decision changes in desirability of choice alternatives. Journal of Abnormal and Social Psychology, 52, 384-389.
- Coppin, G., Delplanque, S., Cayeux, I., Porcherot, C., & Sander, D. (2010). I'm no longer torn after choice: How explicit choices can implicitly shape preferences for odors. Psychological Science, 21, 489-493.
- Lichtenstein, S., & Slovic, P. (2006). The construction of preference. New York: Cambridge University Press.
- Scherer, K.R. (2005). What are emotions? And how can they be measured? Social Science Information, 44, 695-729.
- Sharot, T., De Martino, B., & Dolan, R.J. (2009). How choice reveals and shapes expected hedonic outcome. Journal of Neuroscience, 29, 3760-3765.
- Zajonc, Robert B.; Markus, Hazel (1982-09-01). "Affective and Cognitive Factors in Preferences". Journal of Consumer Research. 9 (2): 123–131. doi:10.1086/208905. ISSN 0093-5301.
- Teraji, Shinji (2018). The Cognitive Basis of Institutions: A Synthesis of Behavioral and Institutional Economics. London: Academic Press. p. 137. ISBN 9780128120231.
- Kemtzian, Patrick (2012). Finance and Psychology – A never-ending love story?!: Behavioural Finance and its impact on the credit crunch in 2009. Berlin: GRIN Verlag. p. 5. ISBN 9783656270577.
- Schoemaker, P. J. H. (2013). Experiments on Decisions under Risk: The Expected Utility Hypothesis. Dordrecht: Springer Science & Business Media. p. 13. ISBN 9789401750424.
- Barbera, Salvador; Hammond, Peter; Seidl, Christian (2004). Handbook of Utility Theory: Volume 2: Extensions. Boston, MA: Kluwer Academic Publishers. p. 761. ISBN 1402077149.
- Steven, Keith. "What Is A Preference Under The Insolvency Act 1986". Retrieved October 1, 2018.
- Hannigan, Brenda (2015). Company Law, Fourth Edition. Oxford: Oxford University Press. p. 368. ISBN 9780198722861.
- Gullifer, Louise; Payne, Jennifer (2015). Corporate Finance Law: Principles and Policy, Second Edition. Oxford: Bloomsbury Publishing. p. 111. ISBN 9781782259602.
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- Stanford Encyclopedia of Philosophy article on 'Preferences'
- Customer preference formation
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