Arbitrary Coherence in Behavioral Economics

Economic theories of valuation generally assume that prices of commodities and assets are derived from underlying "fundamental" values. For example, consumer microeconomics assumes that demand curves for consumer products can ultimately be traced to the valuation of pleasures that consumers anticipate receiving from these products. Current work suggests that preferences are initially malleable, but become "imprinted" (precisely defined and largely invariant) after the individual makes an initial decision. Prior to imprinting, preferences are "arbitrary," (highly responsive both to normative and non-normative influences). Following imprinting, preferences are "coherent" (more precisely defined and largely fixed in subsequent decisions). The model predicts that consumers will respond to changes in conditions in a coherent fashion, as if supported by demand curves derived from fundamental preference, even when their initial valuations are arbitrary.