Question

For each of the following scenarios, determine whether the mother's preferences are consistent with her being an expected utility maximiser and explain your answer in no more than 2 sentences.

(a) The mom has a chocolate bar that she can give to either Alice or Bill (her two children). She's indifferent between giving the chocolate to Alice or Bill, but she prefers the dad to choose randomly who to give it to rather than having to choose herself.

(b) The mom has a chocolate bar that she can eat herself or give to either Alice or Bill. Her most preferred option is eating it herself. The second best option is the dad choosing randomly between giving it to her, Alice or Bill. The worst option is her having to choose between giving it to Alice or Bill.

Answer 1

Answer :-

(a) Mom's preferences are not consistent

In the first case, mom is found to be indifferent between giving the chocolate to Alice or Bill, letting father choose randomly will make her an inconsistent decision maker. If she is indifferent between Alice and Bill (A and B) she should never take a decision that will result in A getting preferred to B or B getting preferred to A.

(b) Mom's preferences are consistent.

Here the conditions are, If mom eats the chocolate, then obviously neither Alice nor Bill gets it, which means that she doesn't prefer one to another among them. Father getting the opportunity to choose also have a possibility of maintaining consistency since option of him giving it to mother is there. But when a choice between Alice and Bill is made it implies inconsistency since one of them is not supposed to be preferred to another.