The Structure of Well-Being

These flashcards cover the key concepts, definitions, and examples related to the structure of well-being as discussed in the lecture.

What are the two types of representations of well-being discussed in the lecture?

Ordinal representations and cardinal representations.

What does 'cardinal comparability' allow in the context of well-being?

It allows for the comparison of well-being gains and losses of different individuals.

What is an ordinal representation of Ann's well-being?

A utility function u is an ordinal representation of Ann's well-being iff u(x) ≥ u(y) iff x is at least as good for Ann as y.

What is an example of a cardinal statement regarding Ann's well-being?

A statement about Ann’s well-being is cardinal if it holds true for a utility function and also for every positive linear transformation of that utility function.

What is the main method discussed for measuring well-being?

The VNM method (Von Neumann and Morgenstern utility function).

According to the VNM axiom, what are the requirements for a well-being ordering?

Completeness and transitivity.

What does the EUR theorem state about the VNM utility function?

If a well-being ordering satisfies the VNM axioms, then it can be represented by an expectational utility function that is unique up to a positive linear transformation.

What does the VNM method involve to measure an individual's well-being?

It relies on the comparison of lotteries involving different outcomes.

How does the VNM method draw a parallel with measuring temperature?

Both involve defining fixed points and using a scale to measure degrees.

What is the significance of strictly increasing transformations in the context of utility functions?

They preserve the ordinal ranking of well-being while possibly altering the scale.