Econ 601: Supplementary Discussion Questions

Decision Theory

Fall 2023

1. Let X = {x, y, z}. Suppose decision maker (DM)’s preference is as follow: x % x,

y % y, x % y, y % x, and nothing else. Is this preference:

(a) Reflexive?

(b) Complete?

(c) Transitive?

(d) Symmetric?

2. Consider a finite set of alternatives X = {1, ..., N } × {1, ..., N }, where N is finite.
Suppose the decision maker’s preference is defined as follows: (x1 , x2 ) % (y1 , y2 ) if
and only if x1 ≥ y1 or x2 ≥ y2 . Is % rational? If yes, please provide a proof. If no,
please provide an example.

3. Consider the same setting as question 2, but now consider the preference defined as
follows: (x1 , x2 ) % (y1 , y2 ) if and only if x1 ≥ y1 and x2 ≥ y2 Is (P(X), c% ) a choice
structure? If not, could you provide a set B ⊆ P(X) such that (B, c% ) is a choice
structure?

4. (From MWG 1.C.1) Consider the choice structure (B, c) with B = ({x, y}, {x, y, z})
and c{x, y} = x. Show that if (B, c) satisfies WARP, then we must have c{x, y, z}
= {x}, = {z}, or = {x, z}.

5. (From 2017 Midterm) Suppose % is a rational preference on X. Prove that for any
A ⊆ X, there exists some x ∈ A such that x % y for any y ∈ A. If X is not a finite
set, do we still have the same conclusion?

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6. Suppose X = {1, ..., N } × {1, ..., N } is a nonempty finite set of alternatives. There
are two utility functions, U1 and U2 , such that Ui : X → R. Specifically, U1 (x) = x1
and U2 (x) = x2 , where x = (x1 , x2 ) ∈ X. The decision maker has a preference %
over X, where x % y if and only if U1 (x) + U2 (x) ≥ U1 (y) + U2 (y), x, y ∈ X.

Consider a function c : P(X) → 2X such that for any nonempty subset A of X,

c(A) = {x ∈ A | x % y for any y ∈ A}. Is (P(X), c) a choice structure? Does it
satisfy WARP? If yes, please briefly explain. If no, please provide a counterexample.