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.

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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