Testing Strictly Concave Rationality
AbstractWe prove that the Strong Axiom of Revealed Preference tests the existence of a strictly quasiconcave (in fact, continuous, generically C(infinity), strictly concave, and strictly monotone) utility function generating finitely many demand observations. This sharpens earlier results of Afriat, Diewert, and Varian that tested ("nonparametrically") the existence of a piecewise linear utility function that could only weakly generate those demand observations. When observed demand is also invertible, we show that the rationalizing can be done in a C(infinity) way, thus extending a result of Chiappori and Rochet from compact sets to all of R(n). For finite data sets, one implication of our result is that even some weak types of rational behavior -- maximization of pseudotransitive or semitransitive preferences -- are observationally equivalent to maximization of continuous, strictly concave, and strictly monotone utility functions.
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Bibliographic InfoPaper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 844.
Length: 20 pages
Date of creation: Nov 1987
Date of revision:
Publication status: Published in Journal of Economic Theory (April 1991), 53(2): 287-303
Note: CFP 782.
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Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA
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- Diewert, W E, 1973. "Afriat and Revealed Preference Theory," Review of Economic Studies, Wiley Blackwell, vol. 40(3), pages 419-25, July.
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