5 - Rational preference, irrational preference, and revealed preference

Abstract

In the previous chapter, I mainly discussed the quantitative representation of preference relations from the perspective of ordinal utility. It was found that ordinal utility and ordinal scales require the property of weak ordering. In the case of interval scales the expression “cardinal utility” is used. In this chapter, I will introduce the concept of revealed preference under the assumption of ordinal utility and the assumption of cardinal utility. The revealed preference theory theoretically guarantees the measurability of utility under the assumption of rationality. Similarly, we may consider revealed preference in the opposite sense from the assumption of irrationality as described in the chapter on rational choice, irrational choice, and bad decisions.