Paulie Walnuts 'Explains' Revealed Preferences
Actions are often a better guide to genuine preferences than words
Most people think that what people say is a good indication of their preferences. When someone says they prefer married life to single life, that is evidence they prefer married life to over former single life. And sometimes that approach works just fine. Unfortunately, though, people often have a motive to lie or twist their words to conform to social pressure. Mechanisms like social desirability bias—when the truth is unpopular, people tend to lie—can be a confound to taking people at their word (as indicative of their genuine preferences).
In addition, talk is cheap. It is easy to say something, and harder to act on it, generally speaking. These are some of the reasons that what people say can be poor evidence of what they actually prefer. For example, when asked about climate change, voters will often say that they are worried about it and are willing to do more to mitigate the effects, and dampens the causes, of climate change. However, when it comes time to part with their money, the average American is only willing to part with a small bit of cash in order to help Mother Earth. Likely, when asked by pollsters, Americans just lie about how much they care about climate change — exaggerating how much money they would be willing to contribute — since other people purport to care about climate change and they want to fit in. So they fall prey to social desirability bias, and exaggerate how much they care about climate change to look better to others.
This is why economists distinguish between stated and revealed preferences—this is known as revealed preference theory. The theory roughly states,
[If] a consumer purchases a specific bundle of goods, then that bundle is “revealed preferred,” given constant income and prices, to any other bundle that the consumer could afford.
In plain English: when someone makes a purchase of goods and services, they reveal that they prefer those goods and services to the available alternatives given their income and other financial and economic facts.
Where does Paulie Walnuts fit in (from the hit HBO show The Sopranos)? Even if he cannot articulate the theory, it is clear in the scene below that Paulie intuitively understands the basics of the theory, and applies it to Tony Soprano’s consumption: the fact that Tony picked a particular nursing home for his mother — where presumably he wants value for his dollars — is an implicit endorsement of their services and price point. And Paulie picks up on that fact, subtle though it is. Of course, the point doesn’t perfectly translate to Paulie, since Tony brings in substantially more income than Paulie. However, it is an indicator of Tony’s genuine preferences, and by extension of the quality of Green Grove, a retirement community. Here’s the scene:
PAULIE: Well, I think I got Ma situated
SILVIO: The Brother Job home
PAULIE: Nah f*** that. We went there. I almost gagged. Nah we’re gonna go with Green Grove based on your recommendation Tony.
TONY: I never recommended it.
PAULIE: Yeah ya did. When you had your Ma there.
(From The Sopranos, Season 4, Episode 4, ‘The Weight’)