Discussion Questions on Rationality
1. The models of rational choice that economists accept maintain that my choices are determined entirely and exclusively by my preferences. Does this imply that it is rational to be self-interested and irrational not to be self-interested?
2. Consider the following choices. You get to draw one ball from an opaque urn containing 1 red ball, 89 white balls, and 10 blue balls.
In problem 1 you have a choice between (A) a million dollars for certain or (B) getting $5 million if you draw a blue ball (Pr = .1), one million if you draw a white ball (Pr = .89), and nothing if you draw a red ball (Pr = .01). Which would you prefer?
In problem 2 you have a choice between (C), a million dollars if you draw a red or a blue ball and nothing if you draw a white ball, or (D), which gives you $5 million if you draw a blue ball and nothing otherwise. Which would you prefer?
The following table summarizes the two choices and the outcomes:
Many people say they prefer A to B and D to C, but this pattern of preferences is inconsistent with the independence axiom. Can you see why? Do you think it is irrational to prefer A to B and D to C?
3. Near the end of Shakespeare’s Romeo and Juliet, Romeo drinks poison just before Juliet wakes. What would a revealed-preference theorist conclude about Romeo’s preferences?