Suppose that there is a decision maker whose preference relation is intransitive. Demonstrate how you may...

Suppose that there is a decision maker whose preference relation is intransitive. Demonstrate how you may exploit this decision maker on the intransitive preferences. Make any assumptions as you see fit.

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Expert Solution

intransitive preferences are those preferences where a person makes an irrational choice. If he prefers A<B<C<A which sometimes does not make sense.

A person with such preferences can easily be exploited, as a matter of fact that is how credit card companies make money.

One example could be: Suppose a person's preferences are as apple<kiwi<orange<apple

I gift my friend an apple (he has intransitive preferences) but I tell him that i have an kiwi and i would trade it to him for a cent and an apple. Since he prefers kiwi over an apple he will gladly make the trade. Then i tell him i have an orange and i would make the trade in return of a kiwi and a cent. He makes the trade again and in the end i tell him that i will again trade with him offering him an apple in return i want a cent and an orange.And he accepts leaving him with an apple, which was the original gift and i am left with 3 cents which i didn't have in the beginning. That is how people with intransitive preferences can be exploited.

Rahul Sunny answered 1 year ago

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