Based on your understanding of your roommate's preferences, you predict that he will select the spaghetti for his lunch at the cafeteria, but instead he chooses the gyros. How do you describe this event in terms of economic theory?
A) Your roommate is irrational.
B) Your roommate does not know what is in his own best interests.
C) You roommate does not know his own preferences as well as you do.
D) You constructed a model that made a prediction, and the prediction was refuted.

Question

Quizplus · Accepted Answer

The situation is explained by economic theory in the context of a model that you constructed to predict your roommate's lunch choice based on his preferences. The fact that he chose a different option than predicted means that the model was refuted or was not accurate enough to capture his actual preference in this particular instance. This does not necessarily imply that your roommate is irrational or does not know his own preferences.

Based on Your Understanding of Your Roommate's Preferences, You Predict