Violation of Transitivity in Consumption Preferences: An Example

When Your Consumption Preferences Break the Rules: A Look at Transitivity

Imagine this: You're faced with choosing between different combinations of goods, like apples and oranges. You find yourself indifferent between having 10 apples and 0 oranges (10,0) or 10 oranges and 0 apples (0,10). However, you'd much rather have 10 apples and 0 oranges (10,0) than a mix of 5 apples and 5 oranges (5,5). Does this seem possible?

Surprisingly, this scenario highlights a violation of 'transitivity' in economics.

What is transitivity? It's a fundamental concept in rational decision-making. Think of it like this:

• If you prefer option A to option B, * And you prefer option B to option C, * Then you should logically prefer option A to option C.

So, where's the disconnect in our apple and orange dilemma?

Let's break it down:

1. Indifference: You're equally happy with (10,0) and (0,10). This means both options provide the same level of satisfaction.

2. Strict Preference: You clearly favor (10,0) over (5,5), meaning you get more satisfaction from having only apples.

Here's where transitivity falters:

• You prefer (10,0) to (5,5).* You're indifferent between (5,5) and (0,10) (because you're indifferent between (10,0) and (0,10)).

Following the logic of transitivity, you should prefer (10,0) to (0,10). But, your initial indifference between these two contradicts this.

This example demonstrates that even simple consumption preferences can sometimes violate the principle of transitivity, raising intriguing questions about how we make choices and what drives our preferences.