Convex preferences: Difference between revisions

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Revision as of 16:50, 18 January 2011

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<math>\succeq</math> is ''strictly'' convex if for any <math>x, y, z \in X</math> where <math>y \succeq x </math> and <math>z \succeq x </math>, and <math> y \neq z</math> then it is also true that <math>\theta y + (1-\theta) z \succ x </math> for any <math> \theta \in (0,1) </math>. It can be translated as: 'is better than relation' (in preference satisfaction).

AnA convex shaped indifference curve displaying convex preferences thus means that the agent prefers, in terms of consumption bundles, averages over extremes (agents express a basic inclination for diversification).

In relation to indifference curves this principle refers to the concept of diminishing marginal rate of substitution.

==References==