Unformatted text preview: perties. The scope of the theory is broader and opens up wider possibilities for general behaviour than is feasible under the preference based approach to decision making. The choice based approach also appeals more to our human sensibilities. The assumptions that we make about choice behaviour are applied to consumer choice behaviours that are readily observable rather than
5 Paraphrased from "Microeconomic Theory" by Mas-Colell, Whinston and Green, Chapter 1 331 assu umptions ab bout intangible or unob bservable p phenomena such as pr a references (i.e. u utility functi ions). haps the mo attractiv feature o the choice based ap ost ve of e pproach is th it tells hat Perh us th individua decision processes need not n hat al necessarily be based o a on proce of "gue ess ess-timation (or induce and/or p n" ed purely theor retical cons structs such h as ut tility functio ons). What the choice based app proach says is that we can s analy individu decision making on an entirely behaviou or obse yse ual n n ural ervational basis s. ENCE BASED APPRO OACH THE PREFERE PREFERENCE RELATIONS The preference based app proach sum mmarizes the behavior of the decis e sion maker r preference relation wh hich we den note by . is a binary in a p Technically, relati on the set of altern ion s natives X th allows u to compa pairs of alternative hat us are es x,y X. example, "x x For e y" m means that "x is at leas as good a y" st as we w can der rive two other importan relations nt , define by ed y x y but not y x (1) m rence relatio , on From the prefer on X X. p First, the strict preference relation, x wher (1) is rea as "x is p re ad preferred to y". o ond, the ind difference re elation, ~, d defined by Seco x~y x wher (2) is rea as "x is in re ad ndifferent to y". o As w have disc we cussed pre eviously, microeconom theory uses the bas mic sic assu umption that consumer preference are ratio r es onal. This a assertion ca be an summ marized in the followin two basic assumptions placed on the pre ng c eference relati...
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This note was uploaded on 05/25/2010 for the course ECON 301 taught by Professor Sning during the Spring '10 term at University of Warsaw.
- Spring '10