Utility maximization is not the only choice function that is consistent with IIA. Therefore, there are choice functions that are indistinguishable from utility maximization. Consider the following decision making rules. Argue whether or not they lead to choice functions satisfying IIA. (a) A decision maker (DM) is choosing between books from a set B: They have a utility function u and a threshold utility level u*. In any choice set, they search through the books alphabetically by title, and choose the first book that has utility level equal to or above u*. If they have not found any such book by the time they reach the end of the choice set, they will choose the book with the highest utility. (b) A DM assigns a utility level to each alternative and chooses the alternative with the lowest utility. (c) The DM ranks the alternatives according to a utility function, and in any choice set chooses the alternative with the median utility.

Utility maximization is not the only choice function that is consistent with IIA. Therefore, there are choice functions that are indistinguishable from utility maximization. Consider the following decision making rules. Argue whether or not they lead to choice functions satisfying IIA. (a) A decision maker (DM) is choosing between books from a set B: They have a utility function u and a threshold utility level u. In any choice set, they search through the books alphabetically by title, and choose the first book that has utility level equal to or above u. If they have not found any such book by the time they reach the end of the choice set, they will choose the book with the highest utility. (b) A DM assigns a utility level to each alternative and chooses the alternative with the lowest utility. (c) The DM ranks the alternatives according to a utility function, and in any choice set chooses the alternative with the median utility.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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