Rationality If x=Y than u(x)pu(y)

u(z)
Preference relation (binary) : E weak
,
I strong If y=2 then v(y)
&
* J : X is weakly (at least as good as preferred to y. Since rationality x = 2 = v(x)> u(z) ,

preferred to
①
X = y : x is
y
By assumption of repr . = U(x) v(y) () +E2

·
x = y =) X=y and YEX.

Xzy
·
and y Ex are not mutually exclusive ·
Rationality does not imply real-valued utility repr
.

·
x zy1yzx =) x my Ex: Lexicographic preferences preferences
·
xIg and yax are mutually exclusive
.
Lexicographic preference is X = (c , ...,
+2)
, y = Lee , ..., Yu)
if x Ye regardless of rast

of items. Indifference map is a point .

Let X be the set of all feasible alternatives assumed to be convex They are strict pref (7)..

If + X then ax + (1 dy -
+ X c. t <[0 1] ,
Transitivity : x= y 1y72 = x72
Completeness
x
, y ,
.

X1 = y 1 or

x2)y2

y
xc =
-

i Completeness : Ex geX one

of the following most be valid,
. ,

xEY , Y*x or both. They have strong monotonicity ,

strict convexity .

ii) Transitivity Ex :
, y ,2 X, x = Y 1 y=2 = X * 2.

Condorsel Cycle :
I 2 3
AB ,
Bec , C Result : Lexi .
pref. cannot be represented by a real-valued util . func

) (
*

B
L
Proof Suppose : for a contr that I a real-valued util . func . U ( ) repr
.

·
For every X1 , we can pick a rational number r(x1) s .
.
t

Rationality : E is rational if I is complete and transitive.

v (x 2)r(x1)> v(x1 1)
-,
,
b . c ·
density propo of Q

x1 r(xi)
-

But then notice that x1 > = r (x1) >

·
Two approaches to study consumer behavior : u (xn 2)(v(x) ,
> u(xc 1) ,
>
u(xic2)>r(xi)>u(xi 1) ,

More traditional
(i) Preferences as the primitive characteristic of indu
. behav .
in econ theory
-
r( ) provides . a one-to-one func .
btw .
the set of real numbers and the

(ii) Choices 1 Il IS 1
Is Y /
( Becomeshoo n) set of rational numbers. There is a contr . since I is infinitely uncountable and Q

is countable the cannot exist a one-to-one function .

rationala
(1) Preferences choices
Cobservable)
W A R P
.
Preferences
Choicese) Continuity preserved For
.

continuous if it limits
.

under
.

(2) : E is is . any sea.

consistencycement (unobservable)

W A R P.: . . .
Weak Axion of Revealed Preferences of pairs Glx yn)3 ,
,
with Xyr for all n
, x= limx" and y :
linyu we a

Correspondes Rationality : > WARP XY .

Functions : Rationality () WARP Result Lexicog : .

pref . are not continuous.

Consider the of bundles x= Ys0 and ye =(0, 1)

-

sea

Proposition Ifz : is rational ,

the For all n
,
x yn

(i) = is both irreflexive XIX does not hold xx but xEX for proof and But x=limx"=(0 ,
0)
y=limyn=10y
transitive x=y1y =2 => X*2

x Prop : If a national = on X is cont . , then I a cont, real-valued util func

.

(ii) ~ is reflexive xwxYxeX ,

trasitive xwylynz=xwe and symmetric r() that represents E

X y =) ynx + 2[X Proof : LaE

(iii) if x = y z2 then XX2

.

·
Say that you guaranteed a real-valued util . repr

Utility Functions Is it unique ?

Representation of : Vx yeX , xEY > v( v(y) , No , any positive monotono transformation of r() do the job
.

·
Can we repr. any with real-valued utility functions? We cannot quantify the preference over different consumption bundles . Ordinal Util . Func

No I can
be repr . only if z is rational .
,

Proof : Since v( ) .
is real-valued ·
·
If E national + cont .
are all util . func .
repr .
E continuous ?

-> relation is complete and transitive on real numbers. No discontinuous pos mon . trans will give disc util. func repr.
you
. , .

For any x, ye/

& For any x,
y,
zeX
either u(u(y)
U(d)=U(aud U(y)
U(x) Y

or v(y) u(x) ,
the

or both r(x), v(a)

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