PAM 2000 Lecture Notes - Lecture 4: Consumer Choice, Behavioral Economics, Bounded Rationality

• School: Cornell University
• Department: Policy, Analysis and Management
• Course: PAM 2000
• Professor: Kim

Document Summary

Chapter 4: consumer choice: three basic assumptions. 3: preferences are complete , never unable to compare i. i. Consumers are always able to choose which of two products they prefer, even when the products are completely unrelated. A , so these cannot be indifference curves for the same person. Function: utility , mathematical relationship between bundle of goods and the utility it provides. U = * y c: u = xy, utility, ordinal . Don"t know gap between ranks, can"t compare between ranks. Cardinal: time needed to complete the race: cardinal , example: race results, utility may not be cardinal measure of utils but can still order bundles in terms of attractiveness, marginal utility : utility derived from last unit consumed. Intuitively, your willingness to exchange y for x depends on how much utility you"ll lose by giving up a unit of y and how you"ll gain by receiving a unit of x.