Question

Which of the following descriptions of consumer behavior violates the assumption of rational preferences? Explain briefly. a. Joseph is confused: He doesn't know whether he'd prefer to take a job now or go to college full-time. b. Brenda likes mustard on her pasta, in spite of the fact that pasta is not meant to be eaten with mustard. c. Brewster says, "I'd rather see an action movie than a romantic comedy, and I'd rather see a romantic comedy than a foreign film. But given the choice, I think I'd rather see a foreign film than an action movie."

Short answer

Brewster's behavior violates the assumption of rational preferences because there's a lack of consistency in his preferences, which leads to an irrational preference cycle.

Step-by-step solution

Analyzing Joseph's Behavior

Joseph is unsure whether he should get a job or go to college full-time. This is a classic example of a trade-off, an essential concept in economics. Here Joseph is confused because he finds both options equally appealing. This doesn't violate the assumption of rational preferences; it is just that Joseph is indifferent between these two options.

Analyzing Brenda's Behavior

Brenda likes to have mustard on her pasta, despite the common norms. This might seem unusual but doesn't violate the assumption of rational preferences. Brenda has a personal preference for mustard on her pasta, and she is consistent with it.

Analyzing Brewster's Behavior

Brewster's preferences aren't consistent, making them a violation of the assumption of rational preferences. If he prefers action movies over romantic comedies and romantic comedies over foreign films, then he should prefer action movies over foreign films by the transitivity of preference. His statement indicates an irrational preference cycle, which is a violation of the assumption of rational preferences.

Key concepts

Rational Preferences

In microeconomics, the concept of rational preferences is foundational to understanding consumer behavior. It centers around the idea that consumers make choices based on consistent and coherent preferences. For example, if a student is given the option between studying for a test or going out with friends, rationality suggests they will choose the action that they believe will best serve their goals or needs, such as achieving a good grade over socializing.

Imagine a consumer named Alex who values health above all and always chooses a salad over a burger. Alex's consistent decision-making reflects rational preferences because their choices are aligned with their health goals. Similarly, referring to the textbook exercise, Brenda's preference for mustard on her pasta is rational as long as she consistently enjoys and chooses it, despite societal norms indicating otherwise.

Rationality in economics doesn't necessarily align with 'common sense.' Instead, it's about predictability and internal consistency within one's choices. Even when a preference seems unusual, like Brenda’s food combination, it is rational if it remains steadfast and aligns with her self-interest.

Economic Trade-offs

The concept of economic trade-offs is essential when decisions require forgoing one option in favor of another due to limited resources, such as time or money. Consider a typical morning dilemma: You can either sleep in or prepare a hearty breakfast, but not both. You trade off extra sleep for the benefit of a fulfilling meal, or vice versa, based on what you value more.

The textbook solution mentions Joseph, who faces a trade-off between taking a job and pursuing college full-time. This dilemma is commonplace for many students and fundamentally reflects the economic principle of opportunity costs—the value of the best alternative that is given up. Joseph's indecision doesn't denote irrational behavior; rather, it may indicate that the benefits of both options are perceived as equal, which can lead to difficulty in making a definitive choice.

Understanding Opportunity Cost

A student might trade-off leisure time for extra studying with the expectation that this will lead to better grades and future job prospects, demonstrating the cost of one choice in terms of the foregone benefits of another. The crux of making economic trade-offs lies in comparing these relative benefits and costs to make a decision that maximizes personal satisfaction or utility.

Transitivity of Preference

The transitivity of preference is a principle stating that if an individual prefers option A over option B and option B over option C, then they should logically prefer option A over option C. This property ensures consistency in preferences and decision-making. Taking the example from the textbook, Brewster's scenario doesn't adhere to this principle, as his choices are not transitive and therefore not rational.

If Sarah prefers chocolate over vanilla and vanilla over strawberry ice cream, transitivity dictates that she should prefer chocolate over strawberry by default. When preferences are transitive, they're logically consistent, allowing for straightforward decision-making processes.

In Brewster's case, if he prefers action movies over romantic comedies and romantic comedies over foreign films, but then reverses to prefer foreign films over action movies, he breaks the chain of transitive preference. This inconsistency can lead to irrational decision-making, challenging the prediction of his choices based on his stated preferences. Transitivity is vital in economics because it allows for the development of consumer preference rankings, which are necessary for various models and predictions about market behavior.