Group-Clicker Question (1 pt): Which of the following statements is true?. 1. If preferences are locally non-satiated, they must be monotonic.2. If preferences are monotonic, they must be locally non-satiated.3. Neither of the above statements is true.0%0%0%Indifference Curves“Many a secret that cannot be pried out by curiosity can be drawn out by indifference.” – Sydney J. Harris2Class 6 – Utility FunctionsMath Session (Tonight)Thursday 1/23 6-8pm GA2103Class 5 – Indifference Curves/MapsHW2 Due Thursday, Feb. 6HW3 Due Thursday, Feb. 13Midterm 1 on Thursday, Feb. 204Individual ChoiceWhat you wantFoundationStructurePatternsWhat you can haveWhat you will chooseFirm Choice Game TheoryClass 5 – Indifference Curves/Maps5Class 5 – Indifference Curves/MapsFoundationFrameModeling Human Choice6Class 5 – Indifference Curves/MapsComplete•A decision can be madeSymmetric•An individual is indifferent to all options she can compareTransitive•Preference rankings are “consistent”Local nonsatiation•No local bliss pointsMonotonicity•More is betterStrict Convexity•Preference for diversityContinuity•No unexpected shifts in preferencesGroup-Clicker Question (P): In forming a generic analogy for human preferences, we should assume preferences are complete.1. Strongly Agree2. Agree3. Somewhat Agree4. Neutral5. Somewhat Disagree6. Disagree7. Strongly DisagreeComplete•A decision can be madeSymmetric•An individual is indifferent to all options she can compareTransitive•Preference rankings are “consistent”Local nonsatiation•No local bliss pointsMonotonicity•More is betterStrict Convexity•Preference for diversityContinuity•No unexpected shifts in preferencesGroup-Clicker Question (P): In forming a generic analogy for human preferences, we should assume preferences are symmetric.1. Strongly Agree2. Agree3. Somewhat Agree4. Neutral5. Somewhat Disagree6. Disagree7. Strongly DisagreeComplete•A decision can be madeSymmetric•An individual is indifferent to all options she can compareTransitive•Preference rankings are “consistent”Local nonsatiation•No local bliss pointsMonotonicity•More is betterStrict Convexity•Preference for diversityContinuity•No unexpected shifts in preferencesGroup-Clicker Question (P): In forming a generic analogy for human preferences, we should assume preferences are transitive.1. Strongly Agree2. Agree3. Somewhat Agree4. Neutral5. Somewhat Disagree6. Disagree7. Strongly DisagreeComplete•A decision can be madeSymmetric•An individual is indifferent to all options she can compareTransitive•Preference rankings are “consistent”Local nonsatiation•No local bliss pointsMonotonicity•More is betterStrict Convexity•Preference for diversityContinuity•No unexpected shifts in preferences10Class 5 – Indifference Curves/Mapsfff11Class 5 – Indifference Curves/MapsfffHey monkey! Want to trade that orange for a pineapple? I’ll do it for $1.Seems reasonable12Class 5 – Indifference Curves/MapsHey monkey! Want to trade that pineapple for an banana? I’ll do it for $1.You bet I would!fff13Class 5 – Indifference Curves/MapsHey monkey! Want to trade that banana for an orange? I’ll do it for $1.That would be splendid!fff14Class 5 – Indifference Curves/MapsAnd so on....fff15Class 5 – Indifference Curves/MapsIntransitive preferences lead to the possibility of a “money pump”, a clear evolutionary disadvantage.16Class 5 – Indifference Curves/Maps01020304050607080901004 5 6 7 8 9 10 11 12 13 13+% of Transitive ResponsesAge% of Transitive Preferences in Color SelectionGroup-Clicker Question (P): In forming a generic analogy for human preferences, we should assume preferences are locally nonsatiated.1. Strongly Agree2. Agree3. Somewhat Agree4. Neutral5. Somewhat Disagree6. Disagree7. Strongly DisagreeComplete•A decision can be madeSymmetric•An individual is indifferent to all options she can compareTransitive•Preference rankings are “consistent”Local nonsatiation•No local bliss pointsMonotonicity•More is betterStrict Convexity•Preference for diversityContinuity•No unexpected shifts in preferencesGroup-Clicker Question (P): In forming a generic analogy for human preferences, we should assume preferences are monotonic.1. Strongly Agree2. Agree3. Somewhat Agree4. Neutral5. Somewhat Disagree6. Disagree7. Strongly DisagreeComplete•A decision can be madeSymmetric•An individual is indifferent to all options she can compareTransitive•Preference rankings are “consistent”Local nonsatiation•No local bliss pointsMonotonicity•More is betterStrict Convexity•Preference for diversityContinuity•No unexpected shifts in preferencesGroup-Clicker Question (P): In forming a generic analogy for human preferences, we should assume preferences are strictly convex.1. Strongly Agree2. Agree3. Somewhat Agree4. Neutral5. Somewhat Disagree6. Disagree7. Strongly DisagreeComplete•A decision can be madeSymmetric•An individual is indifferent to all options she can compareTransitive•Preference rankings are “consistent”Local nonsatiation•No local bliss pointsMonotonicity•More is betterStrict Convexity•Preference for diversityContinuity•No unexpected shifts in preferencesGroup-Clicker Question (P): In forming a generic analogy for human preferences, we should assume preferences are continuous.1. Strongly Agree2. Agree3. Somewhat Agree4. Neutral5. Somewhat Disagree6. Disagree7. Strongly DisagreeComplete•A decision can be madeSymmetric•An individual is indifferent to all options she can compareTransitive•Preference rankings are “consistent”Local nonsatiation•No local bliss pointsMonotonicity•More is betterStrict Convexity•Preference for diversityContinuity•No unexpected shifts in preferences21Class 5 – Indifference Curves/MapsSo what do Economists say?Rational Preferences:Preferences are rational if they are complete and transitive.Self-Clicker Question (P): You are about to purchase a $30 clicker at the University Bookstore. A friend walks up and tells you “you can purchase that clicker for $15 at Ram Bookstore”. Assuming you need the clicker and you have the time to go to the Ram Bookstore, would you walk the 20 minutes to Ram Bookstore?1. Yes2. NoSelf-Clicker Question (P): You are about to purchase a $1515 TV from Best Buy. A friend walks up and tells you “you can purchase that TV from Target for $1500”. Would you drive the 20 minutes to Target