Consistency and Menu-Dependence
In much of modern economics, individual agents are assumed to be fully rational, maximizing their own personal gain. Sometimes, it is said that the person, in his or her maximizing behaviour, considers the immediate neighbourhood as well, in other words, family and close friends.
This being conceded, it is the self-seeking behaviour which is being presumed. Sen (1977) couched the assumption of purely self-seeking behaviour into the following situation of two people who meet in the street. Here is their conversation. “Where is the railway station?” asks one of them. “There”, says the other, pointing at the post office, “and would you please post this letter for me on the way?” “Yes”, the first person answers, determined to open the envelope and check whether it contains something valuable.Sen states that it is often argued that economic theory of utility has too much structure. His view is that there is too little structure. A person’s behaviour is reduced to whether the concept of internal consistency is fulfilled. This is a property which is directly linked to choices from different sets of options. When you choose alternative x, for example, from a larger set, and this alternative is also contained in a smaller set, then this option should be picked from the smaller set as well. Sen’s example from 1997 which violates internal consistency without any trace of pathology runs as follows. Let x be an apple from a fruit basket containing this apple, another apple and the option to choose nothing. The individual to whom this fruit basket is offered picks one of the apples. Now let us suppose that a smaller basket just contains one of the two apples and nothing else. This apple is offered to our individual and the person politely says “No, thanks”. Clearly, this apple, having become the only or last apple, is definitely different from being one of the two apples in the first basket.
Choices frequently depend on what else is offered on a plate - Sen calls this phenomenon “menu-dependence”. The choice of a median element (for example, with respect to the price of a bunch of flowers or a bottle of wine to be offered as a gift) depends on the number of available alternatives. Such a decision violates the postulate of internal consistency (Gaertner and Xu, 1999). The aspect of menu-dependence is particularly striking in one of Sen’s (1997: 753) own examples. Imagine that at a cocktail party, some other guest who you have met asks you whether you would like to come over to his flat the following afternoon, for a cup of tea or a cup of coffee or a hot chocolate. Since the conversation during the party was interesting, you gladly accept this invitation. Imagine that besides tea, coffee and hot chocolate, cocaine is offered as well. Would you accept the invitation now? Sen speaks of the epistemic value of the menu - the alternatives offered contain valuable information per se that may influence an agent’s decision. This example supports his assertion very convincingly that we need more and not less structure in our theories of decision making.
Sen (1997: 763) proposes that maximization be considered (“choose an element such that in comparison no better element exists”) instead of optimization (“always pick the best element from the set of available options”). He argues that it is often the case that the assumption of complete comparability of all objects is not fulfilled. Then a best element does not exist whereas a maximal element is always given.