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Unformatted text preview: Week 1 Lecture Preferences Rationality in Economics • Behavioral Assumption : A decisionmaker always chooses its most preferred alternative from its set of available alternatives. • So to model choice we must model decisionmakers’ preferences. I magine a survey • How would you compare two different consumption bundles, x and y? (can choose more than one) A. x is better than y. B. x is at least as good as y. C. x is exactly as good as y. D. Cannot compare the two. Preference Relations • Comparing two different consumption bundles, x and y: – x is better than y : strict preference “x is strictly preferred to y”. – x is at least as good as y: weak preference “x is weakly preferred to y”. – x is exactly as good as y : I ndifference “x is indifferent to y”. Preference Relations • Strict preference, weak preference and indifference are all preference relations. • Particularly, they are ordinal relations; i.e. they state only the order in which bundles are preferred. Preference Relations • denotes strict preference; x y means that bundle x is preferred strictly to bundle y. Preference Relations • denotes strict preference; x y means bundle x is preferred strictly to bundle y. • ∼ denotes indifference; x ∼ y means x and y are equally preferred. Preference Relations • denotes strict preference so x y means that bundle x is preferred strictly to bundle y. • ∼ denotes indifference; x ∼ y means x and y are equally preferred. • denotes weak preference; x y means x is preferred at least as much as is y. ~ ~ Preference Relations • x y and y x imply x ∼ y. ~ ~ Preference Relations • x y and y x imply x ∼ y. • x y and (not y x) imply x y. • We can simplify the survey into two questions: x y ? y x ? ~ ~ ~ ~ & ~ ~ Assumptions about Preference Relations • Completeness : For any two bundles x and y it is always possible to make the statement that either x y or y x. ~ ~ Assumptions about Preference Relations • Reflexivity : Any bundle x is always at least as preferred as itself; i.e....
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This note was uploaded on 09/06/2010 for the course FBE ECON2113 taught by Professor Franchsica during the Fall '09 term at HKU.
 Fall '09
 Franchsica

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