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Stochastic revealed preference and rationalizability

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  • Jan Heufer

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Abstract

This paper explorers rationalizability issues for finite sets of observations of stochastic choice in the framework introduced by Bandyopadhyay et al. (JET, 1999). Is is argued that a useful approach is to consider indirect preferences on budgets instead of direct preferences on commodity bundles. Stochastic choices are rationalizable in terms of stochastic orderings on the normalized price space if and only if there exits a solution to a linear feasibility problem. Together with the weak axiom of stochastic revealed preference the existence of a solution implies rationalizability in terms of stochastic orderings on the commodity space. Furthermore it is shown that the problem of finding sufficiency conditions for binary choice probabilities to be rationalizable bears similarities to the problem considered here.

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File URL: http://hdl.handle.net/10.1007/s11238-010-9239-y
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Bibliographic Info

Article provided by Springer in its journal Theory and Decision.

Volume (Year): 71 (2011)
Issue (Month): 4 (October)
Pages: 575-592

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Handle: RePEc:kap:theord:v:71:y:2011:i:4:p:575-592

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Web page: http://www.springerlink.com/link.asp?id=100341

Related research

Keywords: Stochastic choice; Rationalizability; Revealed preference; Weak axiom of stochastic revealed preference; Revealed favorability;

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References

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  1. Dasgupta Indraneel, 2009. "Supply Theory sans Profit Maximization," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 9(1), pages 1-16, July.
  2. Indraneel Dasgupta, . "Contraction consistent stochastic choice correspondence," Discussion Papers 08/04, University of Nottingham, School of Economics.
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  4. Richter, Marcel K., 1979. "Duality and rationality," Journal of Economic Theory, Elsevier, vol. 20(2), pages 131-181, April.
  5. Taradas Bandyopadhyay & Indraneel Dasgupta & Prasanta Pattanaik, 2004. "A general revealed preference theorem for stochastic demand behavior," Economic Theory, Springer, vol. 23(3), pages 589-599, March.
  6. Indraneel Dasgupta, 2005. "Consistent firm choice and the theory of supply," Economic Theory, Springer, vol. 26(1), pages 167-175, 07.
  7. Shasikanta Nandeibam, 2009. "On probabilistic rationalizability," Social Choice and Welfare, Springer, vol. 32(3), pages 425-437, March.
  8. Sakai, Yasuhiro, 1977. "Revealed favorability, indirect utility, and direct utility," Journal of Economic Theory, Elsevier, vol. 14(1), pages 113-129, February.
  9. José Alcantud, 2006. "Notes and Comments: Stochastic demand correspondences and their aggregation properties," Decisions in Economics and Finance, Springer, vol. 29(1), pages 55-69, 05.
  10. Bandyopadhyay, Taradas & Dasgupta, Indraneel & Pattanaik, Prasanta K., 1999. "Stochastic Revealed Preference and the Theory of Demand," Journal of Economic Theory, Elsevier, vol. 84(1), pages 95-110, January.
  11. Little, James T., 1979. "Indirect preferences," Journal of Economic Theory, Elsevier, vol. 20(2), pages 182-193, April.
  12. Varian, Hal R, 1982. "The Nonparametric Approach to Demand Analysis," Econometrica, Econometric Society, vol. 50(4), pages 945-73, July.
  13. Barbera, Salvador & Pattanaik, Prasanta K, 1986. "Falmagne and the Rationalizability of Stochastic Choices in Terms of Random Orderings," Econometrica, Econometric Society, vol. 54(3), pages 707-15, May.
  14. Bandyopadhyay, Taradas & Bandyopadhyay, Bandyopadhyay & Pattanaik, Prasanta K., 2002. "Demand Aggregation and the Weak Axiom of Stochastic Revealed Preference," Journal of Economic Theory, Elsevier, vol. 107(2), pages 483-489, December.
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Cited by:
  1. Heufer, Jan, 2013. "Quasiconcave preferences on the probability simplex: A nonparametric analysis," Mathematical Social Sciences, Elsevier, vol. 65(1), pages 21-30.
  2. Jan Heufer, 2009. "Stochastic homothetically revealed preference for tight stochastic demand functions," Economics Bulletin, AccessEcon, vol. 29(3), pages 2472-2477.

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