Abstract

Research in psychology and behavioral economics shows that individuals’ choices often depend on “irrelevant” contextual factors. This presents problems for normative economics, which has traditionally used preference-satisfaction as its criterion. A common response is to claim that individuals have context-independent latent preferences which are “distorted” by psychological factors, and that latent preferences should be respected. This response implicitly uses a model of human action in which each human being has an “inner rational agent.” I argue that this model is psychologically ungrounded. Although references to latent preferences appear in psychologically based explanations of context-dependent choice, latent preferences serve no explanatory purpose.