Thought Supply

In the latest episode of the UBS Center Thought Supply series, Ernst Fehr and Roberto Weber discuss a question that has shaped much of Fehr’s research: how do individual preferences interact with institutions to produce collective outcomes? Reflecting on the evolution of behavioral economics, Fehr argues that the field’s greatest strength lies not in studying isolated individual decisions, but in understanding how people behave within social and institutional environments.  

Throughout the conversation, one idea repeatedly surfaces. To understand social outcomes, it is not enough to study individual preferences in isolation. What matters is how those preferences interact with institutions. Whether the topic is labor markets, cooperation, inequality, or corporate governance, Fehr returns to the same fundamental insight: institutions help determine which motives and which types of individuals ultimately shape collective outcomes. 

This perspective also informs one of his critiques of contemporary behavioral economics. While the field has grown enormously over the past decades, he worries that it has become increasingly focused on individual decision-making, often through surveys and highly simplified settings. For Fehr, one of the greatest strengths of experimental economics lies elsewhere: its ability to study how individuals interact within institutions and how those interactions generate collective outcomes. In his view, this potential remains underutilized.  

“Understanding social phenomena requires understanding how individual preferences interact with institutions.” 

The big unanswered question 
Despite decades of research, Fehr believes some of the most important questions remain unresolved. Foremost among them is the question that gives this article its title: how does society shape the preferences of individuals? Economists have learned a great deal about how preferences influence behavior. Much less is known about where those preferences come from in the first place. What experiences make children more prosocial? How do schools shape cooperation and trust? Which social environments encourage fairness, reciprocity, or civic engagement? For Fehr, understanding the micro-foundations of preference formation represents one of the most promising frontiers in economics. Social preferences, he argues, play a role in almost every domain of life – from families and workplaces to schools, politics, and civil society. Yet how these preferences emerge and evolve remains one of the field’s most important unanswered questions.