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The “Would You Rather” Game As A Test Of Economic Rationality…

September 24th, 2013 · 4 Comments
Behavioral Econ

So I promised a little while ago that I would come back and discuss the specifics of various assumptions that come together to define “economic rationality.” Just as a reminder, they look something like this here:

  • Utility maximizing
    • Able to process all necessary information fully, objectively, and costlessly
      • Not susceptible to framing manipulations
    • Well-defined and well-behaved utility and preferences
      • Complete and transitive preferences
      • Time consistent
      • Long planning horizon

Today, let’s examine this assumption of complete preferences. Technically, having complete preferences means that an individual can easily state a preference (or indifference) for any consumption bundle (i.e. group of stuff) vis a vis any other consumption bundle. More simply put, having complete preferences means that it’s easy to compare any two items and decide which you like better.

Sometimes this is decently easy- it doesn’t take a lot of effort for me to decide whether I prefer a puppy or a punch in the face, and I’m pretty sure that that preference is even immune to framing effects and such. Other times, however, defining a preference is harder than it initially seems- you’d think, for example, that defining a preference for Coke vs. Pepsi would be easy, since the goods in question at least seem close enough to be comparable. Unfortunately, my brain doesn’t give enough of a hoot about either of these items to really decide one way or the other, but it’s unclear whether I’m really indifferent or just haven’t thought the matter through enough.

In some other cases, the goods being compared are so different that I’m not convinced that any sane person has a preexisting preference for one over the other. In other words, if people had complete preferences, then Conan wouldn’t think that Rose Byrne was in any way odd, whereas in reality, well, here you go…

I mean come on, we’ve all played “Would You Rather,” and, if people had complete preferences, this would be an entirely boring and pointless game, but it’s clearly…well, okay, it’s one of those things. I remember one time a friend asked me if I had to choose for the long term whether I would give up hugs or cheese. Apparently my preference function is defined over those arguments – I would give up hugs, and don’t you judge me- but not over hugs vs. socks, since I have to admit that I am still pondering that one even now.

Tags: Behavioral Econ

4 responses so far ↓

  • 1 Evan // Sep 24, 2013 at 6:33 pm

    non-incentivized data is almost completely useless here! If people *actually* had to make these choices, they would.

    A related, but more technical argument, is that we only require complete preferences over states of the world that occur with a non-zero probability. And lets face it, most things that are asked in “would you rather” are zero probability events.

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