Chapter 3

# Chapter 3 - Chapter Three Preferences Rationality in...

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Chapter Three Preferences

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Rationality in Economics ± Behavioral Postulate : A decisionmaker always chooses its most preferred alternative from its set of available alternatives. ± So to model choice we must model GHFLVLRQPDNHUV¶ SUHIHUHQFHV±
Preference Relations ± Comparing two different consumption bundles, x and y: ± strict preference : x is more preferred than is y. ± weak preference : x is as at least as preferred as is y. ± indifference : x is exactly as preferred as is y.

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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. E

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Preference Relations ± denotes strict preference; x y means bundle x is preferred strictly to bundle y. ± a denotes indifference; x a y means x and y are equally preferred. E
Preference Relations ± denotes strict preference so x y means that bundle x is preferred strictly to bundle y. ± a denotes indifference; x a y means x and y are equally preferred. ± denotes weak preference; x y means x is preferred at least as much as is y. ~ ; ~ ; E

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Preference Relations ± x y and y x imply x a y. ~ ; ~ ;
Preference Relations ± x y and y x imply x a y. ± x y and (not y x) imply x y. ~ ; ~ ; ~ ; ~ ; E

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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. x x. ~ ;

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Relations ± Transitivity : If x is at least as preferred as y, and y is at least as preferred as z, then x is at least as preferred as z; i.e. x
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## This note was uploaded on 04/18/2011 for the course ECON 1110 taught by Professor Mehta during the Spring '08 term at Brown.

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Chapter 3 - Chapter Three Preferences Rationality in...

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