The Prism of Prices and Preferences
Disentangling causes of choices
As an economist, when I notice a change in the consumption behavior of a person, I look for one of three causes: a change in the budget constraint, a change in the relative prices, or a change in the preferences of a person.
Consider a consumer whose food of choice was a burger from a fast-food restaurant, now switches to a salad from a new cafe. The owner of the fast-food restaurant is trying to understand why this change happened. First, perhaps the budget constraint of the consumer has changed. But, say, the restaurant owner knows this not to be the case. Then, perhaps the relative prices have changed. Either the actual price of the salad at the new cafe is low enough to induce the change, or perhaps another factor has changed — that the new cafe is closer to the consumer's workplace and reduces their delivery time. Either way, the relative price of consuming the salad for the consumer may have reduced, and thus, affected their choice. The fast-food restaurant owner may now try to lower the actual prices they charge for burgers if they wish to attract the consumer back.
Or, the preferences have changed. The person now prefers salads over burgers.
Traditionally, in economics, De Gustibus Non Est Disputandum. For economists, that translates to:
“an explanation of economic phenomena that reaches a difference between people or times is the terminus of the argument: the problem is abandoned at this point to whoever studies and explains tastes (psychologists? anthropologists? phrenologists'? sociobiologists?).”
— Stigler, G. J., & Becker, G. S. (1977). De Gustibus Non Est Disputandum. The American Economic Review, 67(2), 76–90. http://www.jstor.org/stable/1807222. [emphasis in original]
Another way of looking at what Becker and Stigler are saying, perhaps, is that if simply the preferences have changed, then there's little more to explain or do for the fast-food restaurant owner.
But, of course, ceteris paribus (holding all other things constant) is difficult to achieve in real life. This means that the causal factors may not be operating one at a time, in isolation. Indeed, one causal factor may induce a change in the other. For instance, salads may be considered to have an acquired taste. Perhaps a lowering of the relative cost of the salad got the consumer to consider having a salad, and they then developed a taste, a preference, for it.
Becker and Stigler actually argue that an economist must try and never rely on change in preferences as an explanation. Perhaps the person always had a preference for salads and the consumption depends on the "stock" of salads they had consumed in the past. A lowering of the prices allowed them to "invest" more increasing this stock, and thus come to now have more salads.
Here, it now becomes even more difficult to disentangle the cause of the change in consumption. Was it just the lowering of prices, or has there been a change in the preferences as well? We encounter this problem more frequently than we think.
Say you have a colleague who used to work with you in the marketing department, and you two would often collaborate on projects or grab lunch together during breaks. However, they recently transferred to the finance department, and you've noticed that they now spend much more time socializing and interacting with colleagues from their new department.
In this scenario, there could be several potential factors at play:
Change in relative "prices" (costs and benefits): a. Being in the finance department, your colleague may now have more opportunities to collaborate or network with colleagues who work on similar tasks or have shared goals, increasing the perceived benefits of building relationships within the department. b. The opportunity cost of spending time with you may have increased due to your colleague's new workload, deadlines, or the physical distance between your respective departments.
Change in preferences: a. Your colleague’s interests or priorities may have shifted. They now discuss football with the people in the finance department, but that was never your shared interest with the colleague. b. The social dynamics or culture within the finance department may align better with your colleague's personality or preferred way of interacting, causing a shift in preferences for their social circle.
Change in relative "prices" causing a change in preferences: a. Initially, the change in relative "prices" (e.g., increased benefits of networking within the finance department, physical proximity) may have led your colleague to spend more time with colleagues from that department. b. Over time, as your colleague became more immersed in the finance department's culture, work, and social circles, their preferences may have adapted to align with the new environment, further reinforcing the behavior change.
But ultimately, you come to spend less time with your colleague now than you did in the past. That leaves you worse-off. And you want to change the situation. How you might want to change it depends on the cause.
If the change in behavior is driven primarily by a change in relative "prices" (costs and benefits), there may be potential strategies you could employ to try and spend more time with your colleague:
Reduce the opportunity cost: a. If the opportunity cost of spending time with you has increased for your colleague due to their new workload or deadlines, you could try to accommodate their schedule by suggesting meetings or interactions during times that are more convenient for them. b. Alternatively, you could offer to collaborate on projects or tasks that align with your colleague's new responsibilities, making it more beneficial for them to allocate time to interact with you.
Increase the perceived benefits: If your colleague is spending more time with colleagues from the finance department due to perceived benefits such as networking or collaboration opportunities, you could highlight the value and benefits of maintaining your working relationship, such as your complementary skills or the potential for cross-departmental projects.
Reduce transaction costs: If the physical distance between your departments is a contributing factor, you could suggest meeting in a neutral location or rotating the meeting spots to make it more convenient for both parties.
However, if your attempts to adjust the relative "prices" (costs and benefits) are unsuccessful, it may indicate that your colleague's preferences have indeed shifted, and there may be limited options for you to influence their behavior. De Gustibus Non Est Disputandum. Attempting to forcefully change someone's preferences can be counterproductive and may strain your professional relationship.
Instead, you could focus on maintaining a positive working relationship within the boundaries defined by your colleague's new preferences and priorities. This could involve adjusting your expectations, finding new collaborative opportunities that align with their current interests, or simply acknowledging and accepting the natural evolution of professional relationships over time.