14.123 S15 Microeconomic Theory III, Theory of Choice Lecture Notes

In these notes, I will summarize the basic ideas in choice theory, which you must be familiar with from 14.121. I will describe three ways of modeling individual choice, namely choice function, preference, and utility maximization. I will present the conditions under which one can use each model. One can always use choice functions in modeling a decision maker’s choice at a given situation. In order to represent a choice function by a complete and transitive preference relation, one must have a non-empty choice function that satisfies the weak axiom of revealed preference. Finally, a complete and transferable preference relation can be represented by a utility function, as long as it continuous.