Gerald Gaus (1952–2020) was the James E. Rogers Professor of Philosophy at the University of Arizona. His books include The Tyranny of the Ideal (Princeton). John Thrasher is an associate professor in the Department of Philosophy and the Smith Institute for Political Economy and Philosophy at Chapman University. He is the coauthor of The Ethics of Capitalism.

• PrefaceIntroduction1 RationalityRationality and ChoiceWhat Is Rationality?Rationality as EffectivenessSubjective RationalityRationality and Sound BeliefRational Belief and ChoiceRationality and GoalsActions and GoalsFrom Rational Choice to Homo EconomicusOptimizing—More Is Better than LessDecreasing Marginal ValueThe Law of Demand—Downward Sloping Demand CurvesSelf-InterestConstrained MaximizationConclusionDiscussion Questions2 Ordinal Utility TheoryBuilding BlocksPreferencesPreferences as Tastes or DesiresRevealed Preferences: The Behavioral InterpretationDeliberation, Actions, and OutcomesActions and OutcomesPreferences Over ActionsOrdinal Utility TheoryWhy Accept the Axioms?ConclusionDiscussion Questions3 Cardinal UtilityCardinal UtilityGenerating Cardinal UtilitiesRepresentation of UtilityInterpersonal ComparisonsExpected UtilityQuestioning the AxiomsContinuityBetter PrizesThe Allais ParadoxThe Ellsberg ParadoxProspect TheoryPsychology and Expected Utility TheoryErrors in Probability JudgmentsFraming EffectsEndowment EffectsDo These Findings Undermine Expected Utility Theory?The Relation Between Utility Theory and RationalityRationality and Maximizing UtilityConclusionDiscussion Questions4 Efficiency and ContractRationality and EfficiencyExchange and the Edgeworth BoxProblems with Pareto EfficiencyIndeterminacyPath-DependenceConflicts Between Efficiency and RationalityEfficiency and WelfareMarkets and EfficiencyExternalitiesCompensation and Kaldor-Hicks EfficiencyWelfare, Rights, and the Liberal ParadoxProperty RightsUsing Rights to Define ExternalitiesThe Coase TheoremPublic GoodsNon-Excludability and the Free-Rider ProblemNon-Rival ConsumptionPublic Goods and State ActionHomo Economicus or Voluntary Cooperation?ConclusionDiscussion Questions5 Foundations of Game TheoryStrategic RationalityZero-Sum GamesExtensive Form Zero-Sum GamesThe Prisoner’s DilemmaRationality and EfficiencyPublic Goods and the Prisoner’s DilemmaCoordination GamesChickenStag HuntBattle of the SexesDominance and RationalizabilityMixed StrategiesThe Nash Existence TheoremMixed Strategies in a Coordination GameDo People Play Nash?Subgame Perfection and Backwards InductionThe Farmer’s GameTwo KidnappersBackwards InductionGauthier’s SolutionNuclear DeterrenceCommitmentConclusionDiscussion Questions6 Advanced Topics in Game TheoryRepeated GamesTit-for-Tat and the Evolution of CooperationThe Folk TheoremThe Evolution of Direct ReciprocityEvolutionary GamesHawk-Dove GameEvolutionary Stable StrategiesAsymmetries and the Origin of Property RightsPolymorphic EquilibriaESS and NashEvolutionary Game Theory and RationalitySignalingBargaining TheoryConclusionDiscussion Questions7 Conventions, Norms, and InstitutionsConventionsConventions and CoordinationHow Do Conventions Emerge?Common KnowledgeConventions and ArbitrarinessConvention and ContractSocial NormsWhat Norms DoNorms and CooperationNorms and NashBad NormsInstitutionsTwo Types of InstitutionsInstitutions and Transaction CostsConclusionDiscussion Questions8 Social Choice TheoryThe Problem of Social ChoiceSocial Choice TheoryCollective RationalityMay’s Theorem and Majority RuleMay’s ConditionsMay’s ArgumentArrow’s TheoremCondorcet Voting and Its ParadoxArrow’s ConditionsThe First Stage of the Theorem: From Local Semi-Decisiveness to Global DecisivenessThe Second Stage of the Theorem: Finding the DictatorRepresentation and CoherenceThe Importance of Arrow’s TheoremDoes Arrow’s Theorem Challenge Democracy?DimensionalityCollective Choice RulesProblems of Collective Choice RulesExtending Social Choice RulesCondorcet MethodA Weakly Positional Method: PluralityA Strongly Positional Method: Borda CountCardinal MethodsElimination MethodsWhat to Choose?Path Dependency and Agenda ManipulationPath Dependency in LegislationAgenda Control in the Flying ClubStrategic VotingOther Examples of Strategic VotingLogrolling: Vote Trading in LegislaturesThe Gibbard-Satterthwaite TheoremConclusionDiscussion Questions9 Public Choice and DemocracyBasic Spatial Model of DemocracyUncertainty and IdeologyThe Simple Spatial ModelComplicating the Basic Spatial ModelThe Plurality Rule and the Two-Party SystemChoosing the RulesUnanimityBicameralismLogrolling and Making Everyone Worse OffIntertemporal CoalitionsHomo Economicus and the Symmetry AssumptionVoting and RationalityNon-Electoral UtilityThe Act and Expression of VotingConclusionDiscussion QuestionsBibliographyIndex

Gerald Gaus (1952–2020) was the James E. Rogers Professor of Philosophy at the University of Arizona. His books include The Tyranny of the Ideal (Princeton). John Thrasher is an associate professor in the Department of Philosophy and the Smith Institute for Political Economy and Philosophy at Chapman University. He is the coauthor of The Ethics of Capitalism.

• PrefaceIntroduction1 RationalityRationality and ChoiceWhat Is Rationality?Rationality as EffectivenessSubjective RationalityRationality and Sound BeliefRational Belief and ChoiceRationality and GoalsActions and GoalsFrom Rational Choice to Homo EconomicusOptimizing—More Is Better than LessDecreasing Marginal ValueThe Law of Demand—Downward Sloping Demand CurvesSelf-InterestConstrained MaximizationConclusionDiscussion Questions2 Ordinal Utility TheoryBuilding BlocksPreferencesPreferences as Tastes or DesiresRevealed Preferences: The Behavioral InterpretationDeliberation, Actions, and OutcomesActions and OutcomesPreferences Over ActionsOrdinal Utility TheoryWhy Accept the Axioms?ConclusionDiscussion Questions3 Cardinal UtilityCardinal UtilityGenerating Cardinal UtilitiesRepresentation of UtilityInterpersonal ComparisonsExpected UtilityQuestioning the AxiomsContinuityBetter PrizesThe Allais ParadoxThe Ellsberg ParadoxProspect TheoryPsychology and Expected Utility TheoryErrors in Probability JudgmentsFraming EffectsEndowment EffectsDo These Findings Undermine Expected Utility Theory?The Relation Between Utility Theory and RationalityRationality and Maximizing UtilityConclusionDiscussion Questions4 Efficiency and ContractRationality and EfficiencyExchange and the Edgeworth BoxProblems with Pareto EfficiencyIndeterminacyPath-DependenceConflicts Between Efficiency and RationalityEfficiency and WelfareMarkets and EfficiencyExternalitiesCompensation and Kaldor-Hicks EfficiencyWelfare, Rights, and the Liberal ParadoxProperty RightsUsing Rights to Define ExternalitiesThe Coase TheoremPublic GoodsNon-Excludability and the Free-Rider ProblemNon-Rival ConsumptionPublic Goods and State ActionHomo Economicus or Voluntary Cooperation?ConclusionDiscussion Questions5 Foundations of Game TheoryStrategic RationalityZero-Sum GamesExtensive Form Zero-Sum GamesThe Prisoner’s DilemmaRationality and EfficiencyPublic Goods and the Prisoner’s DilemmaCoordination GamesChickenStag HuntBattle of the SexesDominance and RationalizabilityMixed StrategiesThe Nash Existence TheoremMixed Strategies in a Coordination GameDo People Play Nash?Subgame Perfection and Backwards InductionThe Farmer’s GameTwo KidnappersBackwards InductionGauthier’s SolutionNuclear DeterrenceCommitmentConclusionDiscussion Questions6 Advanced Topics in Game TheoryRepeated GamesTit-for-Tat and the Evolution of CooperationThe Folk TheoremThe Evolution of Direct ReciprocityEvolutionary GamesHawk-Dove GameEvolutionary Stable StrategiesAsymmetries and the Origin of Property RightsPolymorphic EquilibriaESS and NashEvolutionary Game Theory and RationalitySignalingBargaining TheoryConclusionDiscussion Questions7 Conventions, Norms, and InstitutionsConventionsConventions and CoordinationHow Do Conventions Emerge?Common KnowledgeConventions and ArbitrarinessConvention and ContractSocial NormsWhat Norms DoNorms and CooperationNorms and NashBad NormsInstitutionsTwo Types of InstitutionsInstitutions and Transaction CostsConclusionDiscussion Questions8 Social Choice TheoryThe Problem of Social ChoiceSocial Choice TheoryCollective RationalityMay’s Theorem and Majority RuleMay’s ConditionsMay’s ArgumentArrow’s TheoremCondorcet Voting and Its ParadoxArrow’s ConditionsThe First Stage of the Theorem: From Local Semi-Decisiveness to Global DecisivenessThe Second Stage of the Theorem: Finding the DictatorRepresentation and CoherenceThe Importance of Arrow’s TheoremDoes Arrow’s Theorem Challenge Democracy?DimensionalityCollective Choice RulesProblems of Collective Choice RulesExtending Social Choice RulesCondorcet MethodA Weakly Positional Method: PluralityA Strongly Positional Method: Borda CountCardinal MethodsElimination MethodsWhat to Choose?Path Dependency and Agenda ManipulationPath Dependency in LegislationAgenda Control in the Flying ClubStrategic VotingOther Examples of Strategic VotingLogrolling: Vote Trading in LegislaturesThe Gibbard-Satterthwaite TheoremConclusionDiscussion Questions9 Public Choice and DemocracyBasic Spatial Model of DemocracyUncertainty and IdeologyThe Simple Spatial ModelComplicating the Basic Spatial ModelThe Plurality Rule and the Two-Party SystemChoosing the RulesUnanimityBicameralismLogrolling and Making Everyone Worse OffIntertemporal CoalitionsHomo Economicus and the Symmetry AssumptionVoting and RationalityNon-Electoral UtilityThe Act and Expression of VotingConclusionDiscussion QuestionsBibliographyIndex

Gerald Gaus (1952–2020) was the James E. Rogers Professor of Philosophy at the University of Arizona. His books include The Tyranny of the Ideal (Princeton). John Thrasher is an associate professor in the Department of Philosophy and the Smith Institute for Political Economy and Philosophy at Chapman University. He is the coauthor of The Ethics of Capitalism.

• PrefaceIntroduction1 RationalityRationality and ChoiceWhat Is Rationality?Rationality as EffectivenessSubjective RationalityRationality and Sound BeliefRational Belief and ChoiceRationality and GoalsActions and GoalsFrom Rational Choice to Homo EconomicusOptimizing—More Is Better than LessDecreasing Marginal ValueThe Law of Demand—Downward Sloping Demand CurvesSelf-InterestConstrained MaximizationConclusionDiscussion Questions2 Ordinal Utility TheoryBuilding BlocksPreferencesPreferences as Tastes or DesiresRevealed Preferences: The Behavioral InterpretationDeliberation, Actions, and OutcomesActions and OutcomesPreferences Over ActionsOrdinal Utility TheoryWhy Accept the Axioms?ConclusionDiscussion Questions3 Cardinal UtilityCardinal UtilityGenerating Cardinal UtilitiesRepresentation of UtilityInterpersonal ComparisonsExpected UtilityQuestioning the AxiomsContinuityBetter PrizesThe Allais ParadoxThe Ellsberg ParadoxProspect TheoryPsychology and Expected Utility TheoryErrors in Probability JudgmentsFraming EffectsEndowment EffectsDo These Findings Undermine Expected Utility Theory?The Relation Between Utility Theory and RationalityRationality and Maximizing UtilityConclusionDiscussion Questions4 Efficiency and ContractRationality and EfficiencyExchange and the Edgeworth BoxProblems with Pareto EfficiencyIndeterminacyPath-DependenceConflicts Between Efficiency and RationalityEfficiency and WelfareMarkets and EfficiencyExternalitiesCompensation and Kaldor-Hicks EfficiencyWelfare, Rights, and the Liberal ParadoxProperty RightsUsing Rights to Define ExternalitiesThe Coase TheoremPublic GoodsNon-Excludability and the Free-Rider ProblemNon-Rival ConsumptionPublic Goods and State ActionHomo Economicus or Voluntary Cooperation?ConclusionDiscussion Questions5 Foundations of Game TheoryStrategic RationalityZero-Sum GamesExtensive Form Zero-Sum GamesThe Prisoner’s DilemmaRationality and EfficiencyPublic Goods and the Prisoner’s DilemmaCoordination GamesChickenStag HuntBattle of the SexesDominance and RationalizabilityMixed StrategiesThe Nash Existence TheoremMixed Strategies in a Coordination GameDo People Play Nash?Subgame Perfection and Backwards InductionThe Farmer’s GameTwo KidnappersBackwards InductionGauthier’s SolutionNuclear DeterrenceCommitmentConclusionDiscussion Questions6 Advanced Topics in Game TheoryRepeated GamesTit-for-Tat and the Evolution of CooperationThe Folk TheoremThe Evolution of Direct ReciprocityEvolutionary GamesHawk-Dove GameEvolutionary Stable StrategiesAsymmetries and the Origin of Property RightsPolymorphic EquilibriaESS and NashEvolutionary Game Theory and RationalitySignalingBargaining TheoryConclusionDiscussion Questions7 Conventions, Norms, and InstitutionsConventionsConventions and CoordinationHow Do Conventions Emerge?Common KnowledgeConventions and ArbitrarinessConvention and ContractSocial NormsWhat Norms DoNorms and CooperationNorms and NashBad NormsInstitutionsTwo Types of InstitutionsInstitutions and Transaction CostsConclusionDiscussion Questions8 Social Choice TheoryThe Problem of Social ChoiceSocial Choice TheoryCollective RationalityMay’s Theorem and Majority RuleMay’s ConditionsMay’s ArgumentArrow’s TheoremCondorcet Voting and Its ParadoxArrow’s ConditionsThe First Stage of the Theorem: From Local Semi-Decisiveness to Global DecisivenessThe Second Stage of the Theorem: Finding the DictatorRepresentation and CoherenceThe Importance of Arrow’s TheoremDoes Arrow’s Theorem Challenge Democracy?DimensionalityCollective Choice RulesProblems of Collective Choice RulesExtending Social Choice RulesCondorcet MethodA Weakly Positional Method: PluralityA Strongly Positional Method: Borda CountCardinal MethodsElimination MethodsWhat to Choose?Path Dependency and Agenda ManipulationPath Dependency in LegislationAgenda Control in the Flying ClubStrategic VotingOther Examples of Strategic VotingLogrolling: Vote Trading in LegislaturesThe Gibbard-Satterthwaite TheoremConclusionDiscussion Questions9 Public Choice and DemocracyBasic Spatial Model of DemocracyUncertainty and IdeologyThe Simple Spatial ModelComplicating the Basic Spatial ModelThe Plurality Rule and the Two-Party SystemChoosing the RulesUnanimityBicameralismLogrolling and Making Everyone Worse OffIntertemporal CoalitionsHomo Economicus and the Symmetry AssumptionVoting and RationalityNon-Electoral UtilityThe Act and Expression of VotingConclusionDiscussion QuestionsBibliographyIndex