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Quantification of preferences in markets

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  • Jörnsten, Kurt
  • Ubøe, Jan

Abstract

In this paper we quantify agent preferences in a market. In our framework every agent has a utility level associated with each transaction, and we assume that the probability of a feasible market transaction increases with an increase in total utility. It is surprising to observe that this simple behavioral principle induces a usually unique probability measure that can be constructed by a fast numerical algorithm. This unusual combination of a rigorous model and a fast numerical algorithm makes it possible to construct a well-defined set of preferences that implies a set of observed commodity prices.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Mathematical Economics.

Volume (Year): 46 (2010)
Issue (Month): 4 (July)
Pages: 453-466

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Handle: RePEc:eee:mateco:v:46:y:2010:i:4:p:453-466

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Web page: http://www.elsevier.com/locate/jmateco

Related research

Keywords: Agent preferences Efficient markets Statistical equilibria Commodity prices Entropy;

References

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  1. Krebs, Tom, 1997. "Statistical Equilibrium in One-Step Forward Looking Economic Models," Journal of Economic Theory, Elsevier, vol. 73(2), pages 365-394, April.
  2. Anas, Alex, 1983. "Discrete choice theory, information theory and the multinomial logit and gravity models," Transportation Research Part B: Methodological, Elsevier, Elsevier, vol. 17(1), pages 13-23, February.
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Cited by:
  1. Jörnsten, Kurt & Ubøe, Jan, 2006. "Strategic pricing of commodities," Discussion Papers, Department of Business and Management Science, Norwegian School of Economics 2006/19, Department of Business and Management Science, Norwegian School of Economics.

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