Questions tagged [rationality]

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Is the linear probability model consistent with utility maximization?

We know that Logit/probit models are consistent with utility maximization in the sense that the model implied probability of choosing option $1$ equals the probability that option $1$ has larger ...
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2 answers
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How are these examples irrational?

I am reading A Course in Behavioral Economics third edtion written by Erik Angner. I am struggling with page 30, exercise 2.40: Exercise 2.40 Irrationality Explain (in words) why each of the ...
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What would you call a preference relation that is intransitive yet complete?

I am trying to make sense of the following terminology and putting it into a table helps me keep concepts straight: If I am understanding correctly, irrational behavior is describe as a preference ...
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Could Allais Paradox and similar experiments be harmonized with expected utility theory by noting additional counterparty risks?

My answers to the initial formulations of Allais Paradox are 1B and 2B, but only for setups where I have a high degree of confidence in the method of randomness being employed. In many if not most ...
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1 answer
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Analyzing a Gambling Race Paradox

Suppose a number of players are given $100$ points each, and repeatedly engage in a gamble having positive expected value, with the goals of being the first player to reach $100000$ points. Solving ...
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2 votes
2 answers
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Auctions and finding nash equilibrium of a dynamic game

Suppose we have a sequential version of an Auction game: • Player 1 places a bid. • Player 2 observes player 1’s bid, then places a bid. • The player with the highest bid wins the item at auction. • ...
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Necessary and sufficient conditions for the existence of a utility function

I was reading Jehle and Reny, Advanced Microeconomic Theory, where they discuss in detail, the choice problem of a consumer. The Consumption Set (or Choice Set) $X$ is a subset of $R_+^n$, is closed ...
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Rationalizable strategies and Weak Dominance

Can I find the rationalizable strategies for a game where none of the players has strict dominance but only weak dominance?
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Original formulation of the axioms of rationality [duplicate]

Completeness and transitivity are considered to be the two axioms of rationality in case of decisions under certainty. I wanted to know when were these axioms first proposed, by whom and the first ...
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8 answers
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How do economists explain why people contribute to Wikipedia?

What incentives do contributors have? I believe they earn no money. And usually, they earn no reputation either, because most of the contributions are anonymous. I believe this is a public goods game. ...
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Need help with Wakker (2010) on arbitrage

In Prospect Theory (2010; Cambridge UP), Peter P. Wakker has an exercise assignment 3.3.6 without solution in the book and I'm really unsure about this one. The exercise states on pages 76-77: ...
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Premises on which the Efficient Market Hypothesis is built upon

The Efficient Market Hypothesis tells us that stocks are "fairly priced" (i.e. not systematically over- or under-valued). That is, stock prices reflect all information that is already known about them....
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Who is the first one to equate "rational" with "complete and transitive preference"?

MWG taught that, suppose that the menu is finite, "rational" is the same as "complete and transitive". But it seems that it does not cite any sources. Who said this first? vNM said ...
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Demand correspondence is both upper and lower hemi-continuous; is the preference continuous?

$\succsim$ is a weak order over $\mathbb R^L$. For a closed budget set $B\subset\mathbb R^L$, define demand correspondence: $$D(B)=\{x\in B|x\succsim y\forall y\in B\}$$. We know that $D$ is always ...
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Does Pascal's Wager fail archimedean property?

I assume most people have heard of Pascal's Wager, in case you have not: https://en.wikipedia.org/wiki/Pascal%27s_Wager By the Stanford encyclopedia of philosphy: "We have a decision under risk,...
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Understanding Classical Rationality at a Basic Level

I am a high school student in an intro Microeconomics class (note that we have not covered utility functions) and I'm utterly confused about the classical concept of rationality. I certainly ...
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Does Preference have a Hierarchy? A Silly Question

I have what is probably a very silly question, but I have gone down the rabbit hole and can’t get back out..... Is there is a hierarchy of preference, and within each level of choice do we reset the ...
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What does irrationality mean under the notion of revealed preferences? An example with terrorism.

I am currently studying for an economics of conflict exam and one of the potential questions is likely to be in the vein of "Are Terrorists Rational - Discuss". However how would rationality be ...
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Is soil exhaustion rational?

I was talking with friends about soil exhaustion in agriculture. They tell me that it is very frequent because of the methods employed in modern agriculture. They suggest that this amount of ...
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5 answers
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Violation of completeness axiom (simple everyday examples)

Simple everyday examples of violations of transitivity are not difficult to come up with, but I'm having trouble thinking of some for the completeness axiom. One possible formulation of the ...
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