ECON 148 Lecture Notes - Lecture 2: Weighted Arithmetic Mean
Document Summary
Axiom : a property or constraint which must be satisfied. Pick constraints which are necessary conditions for rational behavior. Find a system which satisfies those constraints (if any) Behavior generated by such a system will then satisfy initial constraints -- it implements the axioms. Applied to choice by von neumann and morgenstern, savage and others. S signifies the set of alternatives, with outcomes a,b, etc. The preference relation a b signifies a is preferred or indifferent to b, or b is not preferred to a . A=b signifies indifference between a and b. (apb) signifies a gamble (or lottery ) in which a occurs with probability p, and b occurs with probability 1-p. Given alternatives a and b, either a b, a b, or both, in which case a=b. Interpretation : all pairs of options can be compared; you either prefer one to the other, or.
