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

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Chapter1: Making Economics Decisions

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Concept explainers

Form Utility

The term utility in general refers to the satisfaction earned from usage of a particular product or service. Utility always plays an important role because it influences various important elements like demand & thereby the price of the good or service as well. Though utility is not easy to measure, various types of economic models can be used indirectly. There can be various types of utilities like economic utility, marginal utility, cardinal utility, form utility.

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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.

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