Book contents
- Frontmatter
- Contents
- Figures
- Preface
- 1 Introduction: Marginal Utility Matters
- Part I Trade-Offs and Rationality
- 2 The Rise and Fall of Utility as an Ordering Principle
- 3 Incomplete Preferences, Global and Local
- 4 The Rationality of Choice
- 5 Safety Bias
- 6 The Myth of the Indifference Curve
- Part II Economic Analysis and Policy Without Preferences
- Appendix
- Bibliography
- Index
5 - Safety Bias
from Part I - Trade-Offs and Rationality
Published online by Cambridge University Press: 02 January 2025
- Frontmatter
- Contents
- Figures
- Preface
- 1 Introduction: Marginal Utility Matters
- Part I Trade-Offs and Rationality
- 2 The Rise and Fall of Utility as an Ordering Principle
- 3 Incomplete Preferences, Global and Local
- 4 The Rationality of Choice
- 5 Safety Bias
- 6 The Myth of the Indifference Curve
- Part II Economic Analysis and Policy Without Preferences
- Appendix
- Bibliography
- Index
Summary
An agent unable to decide how to trade-off rival goods can turn to a family of welfare functions and choose the option that guarantees the greatest welfare level. The agent will then display a bias in favor of the ‘safe’ options to which all of the welfare functions impute the same level of welfare. When the rival goods are ordinary items of consumption, the safety-biased preferences that result will exhibit complementarities. When the rival goods are commodities delivered at different states of nature, safety-biased preferences will generate the maxmin model of choice under uncertainty. In any setting, the agent’s sets of preferred options will display kinks at the safe options but not at other options. Such agents will therefore tend to consume at just the points where slight changes in consumption have a large effect on agents’ marginal valuations of goods and hence on prices.
- Type
- Chapter
- Information
- Economics without PreferencesMicroeconomics and Policymaking Beyond the Maximizing Individual, pp. 86 - 100Publisher: Cambridge University PressPrint publication year: 2025