Lecture Notes in Microeconomic Theory

The Economic Agent - Second Edition

Ariel Rubinstein

• Publisher: Princeton University Press
• Year: 2012
• ISBN:
  9781400842469
• Edition: 2
• Topic: Economics
• Subtopic: Microeconomics
• Index: Economics

Ariel Rubinstein's well-known lecture notes on microeconomics—now fully revised and expanded This book presents Ariel Rubinstein's lecture notes for the first part of his well-known graduate course in microeconomics. Developed during the fifteen years that Rubinstein taught the course at Tel Aviv University, Princeton University, and New York University, these notes provide a critical assessment of models of rational economic agents, and are an invaluable supplement to any primary textbook in microeconomic theory.In this fully revised and expanded second edition, Rubinstein retains the striking originality and deep simplicity that characterize his famously engaging style of teaching. He presents these lecture notes with a precision that gets to the core of the material, and he places special emphasis on the interpretation of key concepts. Rubinstein brings this concise book thoroughly up to date, covering topics like modern choice theory and including dozens of original new problems.Written by one of the world's most respected and provocative economic theorists, this second edition of Lecture Notes in Microeconomic Theory is essential reading for students, teachers, and research economists.

• Fully revised, expanded, and updated
• Retains the engaging style and method of Rubinstein's well-known lectures
• Covers topics like modern choice theory
• Features numerous original new problems—including 21 new review problems
• Solutions manual (available only to teachers) can be found at: http://gametheory.tau.ac.il/microTheory/.

LECTURE 1

Preferences

Preferences

Our economic agent will soon be advancing to the stage of economic models. Which of his characteristics will we be specifying in order to get him ready? We might have thought name, age and gender, personal history, cognitive abilities and knowledge, and his mental state. However, in most of economic theory, we specify an economic agent only by his attitude toward the elements in some relevant set, and usually we assume that his attitude is expressed in the form of preferences.

We begin the course with a modeling “exercise”: we seek to develop a “proper” formalization of the concept of preferences. Although we are on our way to constructing a model of rational choice, we will think about the concept of preferences here independently of choice. This is quite natural. We often use the concept of preferences not in the context of choice. For example, we talk about an individual’s tastes over the paintings of the masters even if he never makes a decision based on those preferences. We refer to the preferences of an agent were he to arrive tomorrow on Mars or travel back in time and become King David even if he does not believe in the supernatural.

Imagine that you want to fully describe the preferences of an agent toward the elements in a given set X. For example, imagine that you want to describe your own attitude toward the universities you apply to before finding out to which of them you have been admitted. What must the description include? What conditions must the description fulfill?

We take the approach that a description of preferences should fully specify the attitude of the agent toward each pair of elements in X. For each pair of alternatives, it should provide an answer to the question of how the agent compares the two alternatives. We present two versions of this question. For each version, we formulate the consistency requirements necessary to make the responses “preferences” and examine the connection between the two formalizations.

The Questionnaire Q

Let us think about the preferences on a set X as answers to a long questionnaire Q that consists of all quiz questions of the type:

Q(x, y) (for all distinct x and y in X):

How do you compare x and y? Tick one and only one of the following three options:

I prefer x to y (this answer is denoted as x

y).

I prefer y to x (this answer is denoted by y

x).

I am indifferent (this answer is denoted by I).

A “legal” answer to the questionnaire is a response in which exactly one of the boxes is ticked in each question. We do not allow refraining from answering a question or ticking more than one answer. Furthermore, by allowing only the above three options we exclude responses that demonstrate:

a lack of ability to compare, such as

They are incomparable.

I don’t know what x is.

I have no opinion.

I prefer both x over y and y over x.

a dependence on other factors, such as

It depends on what my parents t...

Table of contents

• Cover
• Half title
• Title
• Copyright
• Contents
• Preface
• Introduction
• Lecture 1. Preferences
• Lecture 2. Utility
• Lecture 3. Choice
• Lecture 4. Consumer Preferences
• Lecture 5. Demand: Consumer Choice
• Lecture 6. Choice over Budget Sets and the Dual Consumer
• Lecture 7. The Producer
• Lecture 8. Expected Utility
• Lecture 9. Risk Aversion
• Lecture 10. Social Choice
• Review Problems
• References
• Index