<p>Exogenous variables are believed to have some value given by nature. They are not caused by your theory's variables of interest. This is why they are said to be outside the model.</p>

<p>Endogenous variables have values dependent on your theory's variables of interest. They both cause, and are caused by your topic. </p>

<p>Example: In the study of wages, some individuals are born superior, genetically, perhaps. They are superior exogenously. Because of their superior innate quality, they may choose to seek additional education knowing they will get higher returns for their investments. So the amount of education is endogenous to wages, because a person's expected earnings informs their education.</p>

CC BY-SA 3.0
2015-04-06T21:22:29.687Z
2015-04-06T21:22:29.687Z
RegressForward
<p>An <strong>Exogenous Variable</strong> is defined as a variable which is unaffected by other variables within an model. </p>

<p>take a multivariable regression model as an example:</p>

<p>$$y=\beta_0+\beta_1x_1+\beta_2x_2+u $$</p>

<p>$x_1$ is called an exogenous variable when its determination is unaffected by $x_2$ and error term $u$.</p>

<p>An <strong>Endogenous Variable</strong> is defined when $x_1$ is influneced by $x_2$ or $u$.</p>

<p>This is important because when we run a regression we are producing a function which assumes a dependent and independent variable. If we find endogeneity  we wont get accurate estimates for the effect of $x_1$ on $y$.</p>

CC BY-SA 3.0
2017-09-03T17:50:35.607Z
2017-09-03T17:50:35.607Z
EconJohn
<p>The inside/internal/endogenous thing simply means that you have something inside your model that determines the value of this specific value.</p>

<p>To put it differently: the model structure (e.g. its underlying equation) + the exogenous variables you throw into your model determine the endogenous variable.</p>

CC BY-SA 3.0
2015-04-01T12:42:52.240Z
2015-04-01T12:42:52.240Z
Fitzroy Hogsflesh
<p>Some quotes from <a href="http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.197.1887&amp;rep=rep1&amp;type=pdf" rel="nofollow noreferrer">this article</a>:</p>

<blockquote>
  <p>Where do preferences
  originate? How are they formed? How does the economic, social, legal, and cultural
  environment shape the formation of preferences? In recent years concepts such as ‘habit
  formation,’ ‘social norms,’ ‘cultural values,’ ‘conspicuous consumption,’ and others have
  been formalized in various ways in the economics literature in an attempt to begin to
  answer these difficult questions. Yet, mainstream economic theory typically assumes that
  preferences are exogenous and stable. [...] economists should take them as given and analyze the implications for economic behavior (Friedman, 1962).</p>
  
  <p>The endogeneity of preferences implies that not only individual preferences [...] determine
  economic outcomes, but also that the economic, social, legal, and cultural structure of society affects
  preferences.</p>
</blockquote>

<p>Thus, using endogenous preferences allow a researcher to study phenomena where social interaction (e.g. networks, influence, marketing, etc) is relevant for consumption choices. For example, <a href="http://dems.unimib.it/repec/pdf/mibwpaper235.pdf" rel="nofollow noreferrer">here</a> is a paper studying "fashion cycles". Preferences for individual $i$ are quite simply define as Cobb-Douglas functions:</p>

<p>$$ U^i = x^{\alpha_i} y^{1-\alpha_i} $$</p>

<p>where $x$ and $y$ are two goods, and $\alpha_i \in (0,1)$. Preferences are endogenised by assuming that $\alpha_i$ <strong>depends on society's past level of consumption of good $x$</strong>. Therefore, how much other individual have consumed in the past affects how much an individual would like to consume today. In this sense, <strong>preferences are endogenous</strong>. This contrast with common exogenous preferences where individual choices <strong>do not depend</strong> on other individual choices (other than through common market mechanisms like price, demand-supply).</p>

<p><a href="http://www.contrib.andrew.cmu.edu/~krack/documents/pubs/1998/1998%20Endogenous%20Preferences.pdf" rel="nofollow noreferrer">This article</a> offers a brief history of exogenous preferences.</p>

CC BY-SA 3.0
2017-08-19T10:32:08.520Z
2017-08-19T10:32:08.520Z
luchonacho
<p>Wikipedia states:</p>
<blockquote>
<p><strong>Exogenous Preference</strong> -- one that comes from outside the model and is unexplained by the model.</p>
<p><strong>Endogenous Preference</strong> -- preferences then cannot be taken as given, but are affected by individual internal responses to the external state of affairs.</p>
</blockquote>
<p>Can someone clarify what these two terms mean? Specifically, what does it mean to be &quot;inside&quot; (or internal) or &quot;outside&quot; (or external) of a model?</p>

CC BY-SA 3.0
2015-04-28T21:40:54.807Z
What wikipedia article is that? It could use some improvement.
Alecos Papadopoulos
CC BY-SA 3.0
2015-04-30T01:22:27.850Z
I'm not sure I got this proof quite right. http://economics.stackexchange.com/a/5383/2679 It's an answer to my own question, but I think I may have worded the part about the inverses wrong. Specifically, I know you can have an ID curve that fails strict convexity and is tangent to the budget line at two points. So even though $v$ and $e$ would be inverses, it's incorrect to say there is only one bundle for which they act as inverses. But I don't know how to say this rigorously / formally.
Stan Shunpike
<preferences>
What is the definition of exogenous and endogenous preferences?
Stan Shunpike
# What is the definition of exogenous and endogenous preferences?

(Asked by: username_0 on 2015-04-01)

Wikipedia states:

> **Exogenous Preference** -- one that comes from outside the model and is unexplained by the model.
>
> **Endogenous Preference** -- preferences then cannot be taken as given, but are affected by individual internal responses to the external state of affairs.

Can someone clarify what these two terms mean? Specifically, what does it mean to be "inside" (or internal) or "outside" (or external) of a model?

**Tags:** preferences

> **Comments:**
> **username_1**: What wikipedia article is that? It could use some improvement.  
> **username_0**: I'm not sure I got this proof quite right. http://economics.stackexchange.com/a/5383/2679 It's an answer to my own question, but I think I may have worded the part about the inverses wrong. Specifically, I know you can have an ID curve that fails strict convexity and is tangent to the budget line at two points. So even though $v$ and $e$ would be inverses, it's incorrect to say there is only one bundle for which they act as inverses. But I don't know how to say this rigorously / formally.  

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## 4 answers

### Answer by username_2 on 2015-04-06. Score: 10

Exogenous variables are believed to have some value given by nature. They are not caused by your theory's variables of interest. This is why they are said to be outside the model.

Endogenous variables have values dependent on your theory's variables of interest. They both cause, and are caused by your topic.

Example: In the study of wages, some individuals are born superior, genetically, perhaps. They are superior exogenously. Because of their superior innate quality, they may choose to seek additional education knowing they will get higher returns for their investments. So the amount of education is endogenous to wages, because a person's expected earnings informs their education.


---

### Answer by username_3 on 2017-09-03. Score: 4

An **Exogenous Variable** is defined as a variable which is unaffected by other variables within an model.

take a multivariable regression model as an example:

$$y=\beta\_0+\beta\_1x\_1+\beta\_2x\_2+u $$

$x\_1$ is called an exogenous variable when its determination is unaffected by $x\_2$ and error term $u$.

An **Endogenous Variable** is defined when $x\_1$ is influneced by $x\_2$ or $u$.

This is important because when we run a regression we are producing a function which assumes a dependent and independent variable. If we find endogeneity we wont get accurate estimates for the effect of $x\_1$ on $y$.


---

### Answer by username_4 on 2015-04-01. Score: 4

The inside/internal/endogenous thing simply means that you have something inside your model that determines the value of this specific value.

To put it differently: the model structure (e.g. its underlying equation) + the exogenous variables you throw into your model determine the endogenous variable.


---

### Answer by username_5 on 2017-08-19. Score: 2

Some quotes from [this article](http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.197.1887&rep=rep1&type=pdf):

> Where do preferences
> originate? How are they formed? How does the economic, social, legal, and cultural
> environment shape the formation of preferences? In recent years concepts such as ‘habit
> formation,’ ‘social norms,’ ‘cultural values,’ ‘conspicuous consumption,’ and others have
> been formalized in various ways in the economics literature in an attempt to begin to
> answer these difficult questions. Yet, mainstream economic theory typically assumes that
> preferences are exogenous and stable. [...] economists should take them as given and analyze the implications for economic behavior (Friedman, 1962).
>
> The endogeneity of preferences implies that not only individual preferences [...] determine
> economic outcomes, but also that the economic, social, legal, and cultural structure of society affects
> preferences.

Thus, using endogenous preferences allow a researcher to study phenomena where social interaction (e.g. networks, influence, marketing, etc) is relevant for consumption choices. For example, [here](http://dems.unimib.it/repec/pdf/mibwpaper235.pdf) is a paper studying "fashion cycles". Preferences for individual $i$ are quite simply define as Cobb-Douglas functions:

$$ U^i = x^{\alpha\_i} y^{1-\alpha\_i} $$

where $x$ and $y$ are two goods, and $\alpha\_i \in (0,1)$. Preferences are endogenised by assuming that $\alpha\_i$ **depends on society's past level of consumption of good $x$**. Therefore, how much other individual have consumed in the past affects how much an individual would like to consume today. In this sense, **preferences are endogenous**. This contrast with common exogenous preferences where individual choices **do not depend** on other individual choices (other than through common market mechanisms like price, demand-supply).

[This article](http://www.contrib.andrew.cmu.edu/~krack/documents/pubs/1998/1998%20Endogenous%20Preferences.pdf) offers a brief history of exogenous preferences.


---

