In a narrow sense, the concept of preferences as used by economists can be understood in terms of consumer preferences over consumption goods. The consumer´s preferences order the set of consumption bundles available to him. (A consumption bundle is a combination of all available commodities that are consumed, where the share of each commodity can either be zero or have some positive value.) The expression xPy means that the consumer prefers some bundle x over a bundle y, i.e., the consumer thinks that the bundle x is at least as good as the bundle y. Accordingly, preferences can be understood as a mathematical relation on the set of available consumption bundles. The following properties of this relation are assumed to hold: The preference relation is complete (i.e., any two bundles can be compared), reflexive, and transitive.
The assumption of transitivity is required for any discussion of preference maximization; if preferences were not transitive, there might be sets of bundles which had no best elements. Additionally, certain continuity assumptions may be required. Given these properties of preferences over consumption bundles, a utility function can be shown to exist. In experimental studies, however, transitivity has repeatedly been shown to be violated (see Tversky (1977) or Goldstone, Medin & Halberstadt (1997)).
See also: utility
Literature: Debreu (1964), Von Wright (1987), Varian (1992), pp. 94-5
|Entry by: Joachim Winter|
December 7, 1997
Direct questions and comments to: Glossary master