Overview
1) For each of the following, identify whether or not it is an example of an individual maximizing their utility. Explain your answers.
a) Person A is deciding between two job offers. Person A values both leisure time and income. Since the two jobs have the same time demands, Person A chooses the job with the higher pay.
b) Person B is deciding between two job offers. Person B values both leisure time and income. Since the two jobs have the same time demands, Person B is about to pick the higher-paying job, but at that moment their parent says, dismissively, “Oh, I knew you’d pick that one,” and Person B picks up their phone and accepts the lower-paying job. After a surge of satisfaction in taking this action, Person B wonders, “What have I done?”
2) For each of the following, identify whether it is an example of comparable preferences—preferences that can be rank-ordered. (Green and Shapiro also call this the assumption of connectedness.) Explain your answers.
a) Person C faces a choice between lemon gelato, hazelnut gelato, and amaretto gelato. After thinking it over, Person C decides they prefer hazelnut to any of the others. When told that the store just ran out of hazelnut, Person C says, “Oh, I can’t decide between lemon and amaretto! I like them both equally.”
b) Person D faces a choice between lemon, hazelnut, and amaretto gelato. Person D says, “I have no idea! I’ve never had any of them before.”
3) For each of the following, explain whether it is an example of transitive preferences. Explain your answers.
a) Person E is describing their gelato preferences: “I like hazelnut better than amaretto. I like lemon even better than hazelnut. But, you know, if I had to choose between amaretto and lemon, I think I’d choose amaretto.”
b) Person F describes their gelato preferences: “I prefer lemon to hazelnut, and hazelnut tastes just a little better than amaretto, I think.” Asked what they would choose if offered lemon and amaretto, they say, “Oh, lemon, definitely!”
4) For each of the following explain whether it is an example of a decision based on the expected utility of the payoff. Explain your answers.
a) Person G chose a job in an industry that they believed would take off, over a job in an industry that they thought would decline. The first industry never did take off, and Person G ended up unemployed.
b) Person H chose a job in an industry that they believed would take off, over a job in an industry that they thought would decline. This prediction was correct, and Person H did very well.
5) For each of the following explain whether it is an example of an individual acting rationally, given the information provided.
a) Person I hates hazelnut gelato. But Person I is at a gelato shop on a date with Person J, and J has just said they love hazelnut gelato. Person I is extremely interested in J, and is desperate to make any kind of connection with them, since so far their tastes have seemed very different. Person I declares that they too love hazelnut gelato and orders a scoop.
b) Person K is extremely concerned about the decline of democracy in Poland. Person K realizes that they are a single individual with little opportunity to make a difference. Person K is also well-aware of the legacies of individuals who set themselves on fire to protest the communist regimes, and how these acts often inspired resistance. Person K goes to the Palace of Culture and Science in the center of Warsaw, distributes leaflets explaining his intentions, and sets himself on fire.
c) Person L walks the same route to work every day out of habit.
d) Person M walks the same route to work every day because it takes them past the home of their crush, and they have a small but real chance of seeing them if they go that way.