Afriat’s Theorem for General Budget Sets
AbstractAfriat (1967) showed the equivalence of the strong axiom of revealed preference and the existence of a solution to a set of linear inequalities. From this solution he constructed a utility function rationalizing the choices of a competitive consumer. We extend Afriat’s theorem to a class of nonlinear budget sets. We thereby obtain testable implications of rational behavior for a wide class of economic environments, and a constructive method to derive individual preferences from observed choices. In an application to market games, we identify a set of observable restrictions characterizing Nash equilibrium outcomes.
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Bibliographic InfoPaper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1703.
Date of creation: 2006
Date of revision:
GARP; rational choice; revealed preferences; market games; SARP; WARP;
Other versions of this item:
- Francoise Forges & Enrico Minelli, 2006. "Afriat's Theorem for General Budget Sets," Working Papers ubs0609, University of Brescia, Department of Economics.
- Forges, Françoise & Minelli, Enrico, 2009. "Afriat's theorem for general budget sets," Economics Papers from University Paris Dauphine 123456789/4099, Paris Dauphine University.
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-06-03 (All new papers)
- NEP-GTH-2006-06-03 (Game Theory)
- NEP-MIC-2006-06-03 (Microeconomics)
- NEP-UPT-2006-06-05 (Utility Models & Prospect Theory)
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