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?