University of Kansas, Fall 2006
Philosophy 666: Rational Choice Theory
Ben Eggleston—eggleston@ku.edu
Survey of initial responses
Please write your answers to the following questions in the space below the
questions and on the back of this sheet. These questions may seem strange to
you, and it is not expected that you can answer these questions with depth
and rigor (though maybe you can). The purpose of this survey is simply to document the answers
to these questions that occur to you at the start of this course.
- Suppose you have $1,000 to invest and you have two options, each resulting
in a payout of some amount or other at the end of one year. One option is to
buy a CD paying 5 percent interest, resulting in a guaranteed payout to you,
at the end of one year, of $1,050. The other option is to buy a junk bond
paying 50 percent interest. But the bond might be worthless at the end of the
year—that’s why they have to offer such high interest rates to get people to
buy them. You estimate that the bond has a 80-percent chance of a payout of
$1,500 at the end of one year, and a 20-percent chance of a payout of $0
(i.e., your investment is lost). How
would you compare these two investments, and which one would you end up
choosing?
- Suppose you own one of two discount furniture stores in a college town.
You and the owner of the other store can each advertise a lot or advertise a little. If
you each advertise the same amount (whether a lot or a little), then you will
split the market approximately evenly. If one of you advertises a lot and the
other advertises a little, then the one who advertises a lot will gain enough
market share to more than offset the extra expense of advertising a lot,
while the other have virtually no revenue at all. So, your possible
outcomes are as follows. The best outcome for you is if you advertise a lot, and
your rival advertises a little. Then you have the whole market and make a lot
of money. The second-best outcome for you is if you and your rival both advertise a little—if
the two of you are going to split the market, you might as well not spend too much money
on advertising. The third-best outcome for you is if you and your rival both advertise a
lot—the two of you split the market, and pay a lot to do so. But this is still better
(for you) than the worst outcome for you, in which you advertise a little and your rival
advertises a lot—for then you have virtually no revenue at all. You know that your
rival is in the same situation as you. Due to antitrust laws and antagonism
between you and your rival, the two of you must make your decisions
independently of each other. How would you decide what to so, and which
strategy (advertise a lot or advertise a little) would you end up choosing?
- Suppose you are in charge of taking four children out for lunch one
Saturday. You can take them to McDonald’s, Wendy’s, or Burger King, but
unfortunately they do not all have the same preferences. Specifically, one prefers
McDonald’s, then Wendy’s, then Burger King; the second prefers McDonald’s,
then Burger King, then Wendy’s; the third prefers Wendy’s, then Burger King,
then McDonald’s, and the fourth prefers Burger King, then McDonald’s, then
Wendy’s. Assuming you want to take them where they collectively most want to
go, how would you go about aggregating their preferences into one collective
preference, and which option (McDonald’s, Wendy’s, or Burger King) would
you end you regarding as the children’s collectively most-preferred place to
have lunch?
- Have you liked thinking about the foregoing questions, or has it been
rather unpleasant?