Rubinstein2005-page44 - 12:18 26 master Sheet number 42...

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October 21, 2005 12:18 master Sheet number 42 Page number 26 26 Lecture Three The claim is that an economic agent who behaves according to a choice function that is not induced from maximization of a prefer- ence relation will not survive. The following is a “sad” story about a monkey in a forest with three trees, a , b , and c . The monkey is about to pick a tree to sleep in. It has in mind a binary relation % that reflects the comparison he makes mentally between any two trees such that a  b , b  c , and c  a . Assume that whenever he is on tree a he sees only tree b , whenever he is on tree b he sees only tree c , and whenever he is on tree c he observes only tree a . The monkey’s choice function is C ( { a , b } ) = b , C ( { b , c } ) = c , C ( { a , c } ) = a . The monkey will perpetually jump from tree to tree to tree—not a good mode of behavior in the “cruel” environment of nature. A similar “story,” more appropriate to human beings, is called the
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