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utility.4 - Econ 100A Utility(Chapter 4 Thomas G Koch Fall...

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Econ 100A: Utility (Chapter 4) Thomas G. Koch Fall 2008 Thomas G. Koch Utility (4) 1(41)
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Clickers Turn on your clicker Hit a button Thomas G. Koch Utility (4) 2(41)
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What is a utility function? Takes some bundle of goods, ( x 1 , x 2 ) . . . Tells you “how happy” you are with them. u (Three oranges , Two apples) = 72 Thomas G. Koch Utility (4) 3(41)
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From the budget constraint . . . Thomas G. Koch Utility (4) 4(41)
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Do you have a utility function? (A) Yes (B) No (C) What is a utility function? Thomas G. Koch Utility (4) 5(41)
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What about preferences? Previously: Just comparing bundles Why all the numbers? Thomas G. Koch Utility (4) 6(41)
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Assumptions about preferences Complete—one always at least as good as another Reflexive—always as good as itself Transitive— A B and B C A C Thomas G. Koch Utility (4) 7(41)
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Do you have preferences like this? (A) Yes (B) No (C) What is a utility function? Thomas G. Koch Utility (4) 8(41)
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Should look familiar looks like Rubenesque The real numbers ( R ) have the same properties Don’t have to believe in a utility function Preferences are the same as a utility function Thomas G. Koch Utility (4) 9(41)
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Ordinal Utility Numbers don’t matter . . . only order does Ordinal=“of or pertaining to order” Thomas G. Koch Utility (4) 10(41)
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Monotonic Transformations
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