Axiomatic Models of Rational Behavior and Interpretations

Abstract

In order to build a model of rational behavior in economics we can start with a function describing the agent’s behavior through reasonable properties from which preferences can be deduced. Conversely, the model can be based on a preference relation which is assumed to possess some properties implying the existence of a reasonable choice correspondence. Both approaches allow potent models of the individual’s behavior to be constructed. In this article it will be shown that the axioms of a model describing rational behavior by a real-valued function can be interpreted by the well-known income compensation function depending on a given preference relation. Accordingly, we will introduce a second model describing the individual behavior. As an interpretation the distance function, a widely used tool in economics, can be shown to fulfill the axioms of the second model. These different approaches make it possible to analyze choice behavior from different points of view. Hence, we may achieve a deeper insight into the economic problems lying behind these approaches.