New answers tagged utility
1
The following is my adaptation of an example in Richard Thaler's Misbehaving (1).
1. Positive framing of certain \$100
Imagine you are $300 richer than you are today. You are given a choice between:
A. A certain gain of \$100.
B. A 50% chance to gain \$200 and a 50% chance of losing \$0.
2. Negative framing of certain \$100
Imagine you are $500 richer ...
1
You may find this article useful Licensing and Rent Dissipation.
In simple terms you might think of it as the devaluation of an 'asset' of some sort.
1
This is how indifference curves look :
5
If the utility is continuous and locally insatiable then the Hicksian demand equals the Walrasian demand.
So you'll need to look for a utility function which violates atleast one of these.
Lets try a simple violation of non-satiation $$
u(x,y) = \left\{
\begin{array}{ll}
x+y & \quad x+y \leq 1 \\
1 & \quad \text{ ...
1
At the level of individuals (and in the differentiable case), the first order derivatives of the demand system are related to the second order derivatives of the utility function. This implies that the second order derivatives of the demand system are related to the third order derivatives of the utility function. \
Indeed, from the first order condition ...
8
To the pure ordinalist who believes that preferences are purely ordinal, the concept of marginal utility (MU) has no meaning. (And a fortiori, the concept of diminishing MU also has no meaning.)
However, the concept of the marginal rate of substitution (MRS) does have meaning.
In the course of our work, we may compute something that we call MU. But to the ...
3
What matters is not the utility function but the indifference sets. They produce an ordering of the outcomes. This ordering is a total order - reflexive, transitive, antisymmetric and total. If some conditions are satisfied we obtain indifference sets in the form of the the usual indifference curves. A sufficient condition for this is that the relationship ...
2
If you measure how well off he is by his utility, then no. His utility is 10 in both scenarios.
The fact that career A is open to him increases his utility more in the second scenario than in the first scenario, this is what the "net utility benefit" shows you.
Top 50 recent answers are included
