Week 1 - Rational Choice

Rationality

Individuals have goals and do the best they can to achieve them

Rational Choice theory

Assumes that consumer preferences follow certain properties that render them analytically tractable

Axioms of rational behaviour

Completeness - Individuals have the ability to compare alternatives

Transitivity - If A is preferred to B and B is preferred to C, A is preferred to C

Rational preferences

Preferences that satisfy transitivity and completeness

Methodological Individualism

Political outcomes explained by the behaviour of goal-oriented, self-interested individuals

Strategic Interactions

The behaviour and choice of an individual depends on the choices of others and the institutions and social norms in place

Game theory - Roger Myerson (1991)

The study of mathematical models of conflict and cooperation between intelligent, rational decision-makers.

Complete information

All the players have the same knowledge about the game

Nash Equilibrium

A situation where one player cannot improve there outcome by alone changing there strategy