Question

3. An economics professor went out to dinner one night and observed one of her students partying and having a good time (and obviously not studying). The next day was a final exam. When the professor's husband found out the student was in her class, he said the student's behavior was irrational. The professor disagreed. Under what condition is behavior irrational according to the properties of consumer behavior discussed in the chapter? What situations could make the student's behavior rational? Hint: When the Professor's husband said the student behavior was irrational, what was he assuming about the student's preferences? If you argue the behavior is rational, what are you assuming about the student's preferences?

Answer 1

Rational behavior refers to the decision making capacity of an individual or his/her capacity of making choices which can maximise his/her utility. Here the student had two choices  - studying and preparing at home for the next day final exam or partying and having a good time.

According to the Prof's husband , students's preference should be studying and preparing for the next day exam , thus according to the revealed preference theory of consumer behavior as the student is ration , he/she should study thus here he/she is doing irrational activities by not studying.

On the other hand, if we think of that student, for him/her, partying and having a good time gives more utility that studying for the exam. According to revealed preference theorem , individual is always rational and no emotional background can harm his/her economic decision, similarly here from the point of view of the student partying is giving more utility than studying, thus he/she makes a decision by being rational and does what maximizes his/her utility.