Talk:Indifference curve
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Independence of purchase choices from budget: When individual demand curve is aggregated to the group's the major assumption is made that consumers all spend the same fraction of their wealth on each commodity, no matter whether they are a pauper or a billionaire. This underlies the microeconomist's major ignorance of the distribution of wealth in society.
I removed this; an odd assumption is introduced, not based on the theory discussed in the article, and then it is used as argument against the theory. - Patrick 09:55 Mar 2, 2003 (UTC)
User:67.42.28.222 Replaced the assumetions section from:
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[edit] Assumptions Original
These properties follow mathematically from the first three of the following list of assumptions. These assumptions, which are troublesome, are made in conceiving of indifference curves and demand functions:
Completeness: This assumption rests on the assertions that choice-makers have (1) infinite knowledge not just about the details of any apparent options, but about all (other) existing possibilities, and how much they would cost (including all implicit costs not reflected in the price), and (2) infinite knowledge about the set of factors which affect the personal satisfaction inherent in the option. This is thus subject to another selection problem: the total utility of a given choice depends on how many tangible and intangible factors one takes into account. Does one want to know how a commodity was made, who or what was destroyed by its production, or what the alternatives might have been, given that such knowledge will likely affect the object's desirability (utility)? Since not buying something but rather waiting for a future alternative (which might radically change the attractiveness of existing options) is always one option, the current utility is not even theoretically assessable. All these (thoroughly impossible) conditions would together mean that every pair of options has a unique ordering of utility.
Transitivity: Essentially, this says the pair ordering above extends to more than two options and is unique.
Non-satiation: This is the idea that people always want more --- not of something, but of everything and anything! This has elsewhere been called the philosophy of the cancer cell. Non-satiation is frequently relaxed when the specifics of the market show that this is the case.
Satiation: The marginal value a person gets from each commodity falls with the number of units. This is also called convexity. If one has much of something, one is not very happy with even more (but, according to the previous assumption, still a little).
Robotic behaviour: This seems separate from the other "rationality" criteria above. This is the assumption that a consumer not only can order options according to preference, but acts on such a utility-based rationale rather than, say, primarily out of habit or subject to an influence like "training" (e.g. due to marketing). In other words, the relationship between "utility" and effective "preference" is quietly assumed, in contradiction to what any psychologist or advertising agent knows. In reality, people making choices are well aware that they are not acting on the sum of their knowledge, but rather on habit, bias, and impulse as well. Consumers do not make their purchase decisions all at once, and thus do not have a "budget line" for most decisions. This "irrationality" applies to mass behaviour (subject to "fashion") even more than it does to individuals. Note however that a preference based on habit, bias or fashion does not necessarily contradict the theory.
Independence of budget and desires: It is assumed that consumers do not have control over the amount of their income. In reality, many people are in a position to earn extra income when they need to purchase something big, and to emphasize work which does not earn monetary compensation when they have enough.
Independence of purchase choices from non-monetary choices: More generally, since the given formalism is used to represent money-transactions only --- i.e. in the context of a market --- there is an assumption that a consumer's set of choices which concern monetary costs is entirely independent from the set of choices which do not have any cost involved. Instead, humans are social beings and thus use heuristics such as morality and social influence to make these decisions. If this is true, the rational choice theory cannot be repaired with any perturbation; it is simply inapplicable.
- with:
[edit] 67.42.28.222's Assumptions
The first three assumptions are necessary, the next two are convenient.
Completeness: Consumers know their individual preferences; they can choose between any consumption bundle X and consumption bundle Y. They know either that X is preferred to Y, Y is preferred to X, or that they are indifferent between X and Y.
Transitivity: If a consumer prefers bundle X to bundle Y, and prefers bundle Y to bundle Z, then he must prefer bundle X to bundle Z.
Continuity: This means that you can choose to consume any amount of the good. For example, I could drink 11 mL of soda, or 12 mL, or 132 mL. I am not confined to drinking 2 liters or nothing.
Non-satiation: This is the idea that more of any good is always preferred to less.
Convexity: The marginal value a person gets from each commodity falls relative to the other good. In a two good world, if a consumer has relatively lots of one good he would be a happier with a little less of that good and a little more of the other.
- 67.42.28.222 is certainly correct, I am not sure if some of the information in the original should be readded. Jrincayc 15:02, 19 Mar 2004 (UTC)
[edit] incorrect ???
- I removed the incorrect phrase in the following paragraph. Both ordinal and cordinal approaches to utility are theories. I do not think the word "incorrect" or "wrong" should be placed upon a theory unless proven so. --Voidvector 18:41, Nov 9, 2004 (UTC)
[edit] History
The theory of indifference curves was developed by Edgeworth, Pareto and others in the first part of the 20th century. The theory was developed so that analysis of economic choices could be based upon preferences which can be observed and compared (ordinal utility), rather than the older concept of utility which was based on the incorrect and unrealistic assumption that the satisfaction derived from economic choices could be measured (cardinal utility).
diff== Positive Indifference curves ==
- A special case of Indifference curve slopes upward from left to right (positive slope) for goods known as "Giffen goods". Giffen goods (named after Robert Giffen) are inferior goods that increase in demand as their price increases. Giffen's example was of demand for bread by the poor which increases as the price of bread increases because the additional cost displaces the purchase of more expensive foods in their limited budget.
The indifference curve for giffen goods still have negative slope. They just are scrunched up in a particular way. Positive slopes on indifference curves imply that one of the 'goods' is a bad, since the person would trade less of good y for less of good x. So say I have pizza and garbage. A positive indifference curve example would be I would give up 3 pizzas and 5 bags of garbage and still be just as happy. Jrincayc 13:44, 9 Dec 2004 (UTC)
Instead of removing that, can you please add a section for showing behaviour of indifference curve in case of Giffen goods. pamri 07:51, 10 Dec 2004 (UTC)
[edit] This article needs renaming or a thorough rearrangement
The title is "Indifference curves." But the formal treatment comes first. Who's the audience for this, first-year grad students? Probably, b/c nobody has complained. But who wants to use this article as a link to other articles? Possibly also nobody. Wiki readers would be better served with the curves coming first and with a ground-up exposition. Thx. Thomasmeeks 07:33, 12 August 2006 (UTC)
- Merci! Or is it, "Mercy!" Thomasmeeks 19:00, 5 September 2006 (UTC)
[edit] I Agree
Surely, the typical person who comes to Wikipedia to read about indifference curves will require some kind of non-technical introduction. Will continue work on this over the next day or two. UbiquitousUK
