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Christian W. Bach
Agenda
Introduction
Binary Relations
Strict Preference
Exam (80%)
Schedule
Week 3: Preferences
Week 4: Utility
Week 5: Choice
Week 6: Uncertainty
Normative Considerations
Descriptive Considerations
Insofar as his preferences (e.g. as revealed by his choices)
conform to a set of axioms, behaviour can be modelled as if the
agent chooses in line with the quantitative representation.
Then, the obvious question is empirical: to what extent do
persons’ choices conform to given axioms resp. representation?
The emphasis is on testable axioms, and on testable
implications of given axioms resp. representation.
Almost no one seriously maintains that persons do conform
exactly to the axiomatic systems of decision theory: in fact, there
exists a substantial amount of empirical evidence against it.
At best, real-world behaviour approximates the axiomatic based
behaviour of decision theory.
Relevance? If persons’ behaviour is approximately what is
modelled, then the model might unveil something about how
behaviours interact or intertwine in the system.
Agenda
Introduction
Binary Relations
Strict Preference
Binary Relations
A × B := {(a, b) : a ∈ A, b ∈ B}
B ⊆ X × X = {(x, y) : x, y ∈ X}
Examples
1 X = {1, 2, 3}, and B = {(1, 1), (1, 2), (1, 3), (2, 3), (3, 1)}.
Examples
1 X = {1, 2, 3}, and B = {(1, 1), (1, 2), (1, 3), (2, 3), (3, 1)}.
B is weakly connected.
3 X = R, and B =≥.
B is reflexive, and antisymmetric, transitive, negatively transitive,
complete, and weakly connected.
Agenda
Introduction
Binary Relations
Strict Preference
“I strictly prefer x to y”
x y.
⊆ X × X.
Preferences
Definition
A binary relation ⊆ X × X on some set X is called strict preference
relation, if it is asymmetric and negatively transitive.
Proof:
Observe, by contraposition, that the statement
The agent might not be willing to say either that (10, 10) (15, 6)
or (15, 6) (9, 9); he might plead that the comparisons called for
are too difficult for him to make.
Decision Theory I: Preferences http://www.epicenter.name/bach
Introduction Binary Relations Strict Preference Weak Preference and Indifference
Proof:
Agenda
Introduction
Binary Relations
Strict Preference
Interpretation
Proposition 2
Let X be some set. If ⊆ X × X is a strict preference relation, then:
Proof
1 The statement follows from the asymmetry of and the
definition of ∼.
Proposition 3
Let X be some some set, and ⊆ X × X be some binary relation on X.
Consider a binary relation ⊆ X × X such that x y, if and only if,
y 6 x, for all x, y ∈ X. If is complete and transitive, then is a strict
preference relation.
Due to Propositions 2.2 & 3, it does not matter whether the basis is a
strict preference relation that is asymmetric & negatively transitive,
or a weak preference relation that is complete & transitive.
Definition
A binary relation ⊆ X × X on some set X is called weak preference
relation, if it is a weak order, i.e. complete and transitive.