Well-behaved preferences, also known as rational preferences, refer to a set of properties or characteristics that describe how individuals make choices among different options. These properties are based on the assumptions of consistency and rationality. Here are some key characteristics of well-behaved preferences:
- Completeness: Well-behaved preferences assume that individuals can compare and rank all possible options. For any two options, a person can determine a preference order, indicating which option is preferred, or if they are equally preferred.
- Transitivity: Transitivity assumes that if option A is preferred over option B and option B is preferred over option C, then option A is also preferred over option C. This property ensures that preferences are logically consistent and do not contain contradictions.
- Non-satiation: Non-satiation, also known as the more-is-better property, suggests that individuals always prefer more of a good to less. In other words, if given the choice, individuals prefer a higher quantity or level of a good or service.
- Convexity: Convexity assumes that preferences are not extreme or inconsistent. It implies that a mix of two options, such as a combination of two goods, can be preferred to either of the options alone. Convexity reflects the idea of diminishing marginal utility, where the additional satisfaction gained from consuming one more unit of a good diminishes as consumption increases.
These characteristics of well-behaved preferences provide a framework for analyzing and modeling individual decision-making. They serve as a foundation for economic theories, such as consumer theory, which study how individuals make choices and allocate resources based on their preferences.