Rational Choice

by Gilboa, Itzhak

• ISBN13: 9780262014007
• ISBN10: 0262014009
• Edition: 1st
• Format: Hardcover
• Copyright: 2010-04-30
• Publisher: Mit Pr

Summary

This book offers a rigorous, concise, and nontechnical introduction to some of the fundamental insights of rational choice theory. It draws on formal theories of microeconomics, decision making, games, and social choice, and on ideas developed in philosophy, psychology, and sociology. Itzhak Gilboa argues that economic theory has provided a set of powerful models and broad insights that have changed the way we think about everyday life. He focuses on basic insights of the rational choice paradigm-the general conceptualization rather than a particular theory-that survive recent (and well-justified) critiques of economic theory's various failures. Gilboa explains the main concepts in language accessible to the nonspecialist, offering a nonmathematical guide to some of the main ideas developed in economic theory in the second half of the twentieth century. Chapters cover feasibility and desirability, utility maximization, constrained optimization, expected utility, probability and statistics, aggregation of preferences, games and equilibria, free markets, and rationality and emotions. Online appendixes offer a survey of relevant mathematical concepts, a rigorous exposition of the formal models described in the book, exercises and problems, and solutions. These materials are useful supplements to the book for classroom use.

Table of Contents

Complete Table of Contents
Preface	p. xiii
Suggested Reading	p. xvii
Optimization
Feasibility and Desirability	p. 3
Examples	p. 3
Separating Can from Want	p. 3
What Is Meant by Rational?	p. 5
Uncertainty	p. 6
Zen and the Absurd	p. 7
On Theories and Paradigms	p. 9
Utility Maximization	p. 11
Example	p. 11
Two Points	p. 17
Interpretations	p. 17
Measurement Issues	p. 21
Utility and Disutility	p. 22
Constrained Optimization	p. 25
General Framework	p. 25
Example: The Consumer Problem	p. 27
Marginality Principle	p. 29
Risk and Uncertainty
Expected Utility	p. 35
Examples	p. 35
Expected Value Maximization	p. 36
Expected Utility Maximization	p. 39
Elicitation of Utility	p. 44
From Simple to Complex	p. 46
Probability and Statistics	p. 49
What Is Probability?	p. 49
Relative Frequencies as Objective Probabilities	p. 52
Subjective Probabilities	p. 54
Statistical Pitfalls	p. 56
Group Choices
Aggregation of Preferences	p. 73
Summation of Utilities	p. 73
Condorcet's Paradox	p. 77
Impossibility Theorems	p. 78
Pareto Optimality/Efficiency	p. 85
Limitations of Pareto Optimality	p. 87
Games and Equilibria	p. 91
Prisoner's Dilemma	p. 91
Nash Equilibria	p. 103
Equilibrium Selection	p. 107
The Power of Commitment	p. 111
Common Knowledge	p. 113
Extensive Form Games	p. 113
Perfectness and Credible Threats	p. 114
Free Markets	p. 119
Example: The Case for Globalization	p. 119
The First Welfare Theorem	p. 123
Limitations of Free Markets	p. 129
Example	p. 135
Rationality and Emotions
Evolutionary View of Emotions	p. 139
Utility and Well-Being	p. 143
Money Isn't Happiness	p. 143
Qualifications	p. 145
Epilogue	p. 149
Notes	p. 151
Index	p. 155
Online Appendixes
Table of Contents and Downloadable PDFs
Table of Contents provided by Publisher. All Rights Reserved.