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Revealed cardinal preference

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  • József Sákovics (University of Edinburgh)

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Abstract

I prove that as long as we allow the marginal utility for money lamda to vary between purchases (similarly to the budget) then the quasi-linear and the ordinal budget-constrained models rationalize the same data. However, we know that lamda is approximately constant. I provide a simple constructive proof for the necessary and sufficient condition for the constant lambda rationalization, which I argue should replace the Generalized Axiom of Revealed Preference in empirical studies of consumer behavior.

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Bibliographic Info

Paper provided by Edinburgh School of Economics, University of Edinburgh in its series ESE Discussion Papers with number 212.

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Length: 8
Date of creation: 18 Jan 2012
Date of revision:
Handle: RePEc:edn:esedps:212

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  1. Syngjoo Choi & Shachar Kariv & Wieland Müller & Dan Silverman, 2011. "Who Is (More) Rational?," NBER Working Papers 16791, National Bureau of Economic Research, Inc.
  2. Richard Blundell & Martin Browning & Ian Crawford, 1997. "Non-parametric Engel curves and revealed preferences," IFS Working Papers W97/14, Institute for Fiscal Studies.
  3. Marcel Richter & Kam-Chau Wong, 2005. "Infinite inequality systems and cardinal revelations," Economic Theory, Springer, vol. 26(4), pages 947-971, November.
  4. M.J. Todd & A. Fostel & H.E. Scarf, 2004. "Two New Proofs of Afriat's Theorem," Econometric Society 2004 North American Summer Meetings 632, Econometric Society.
  5. Douglas M. Gale & Shachar Kariv & Syngjoo Choi & Raymond Fisman, 2007. "Revealing Preferences Graphically: An Old Method Gets a New Tool Kit," American Economic Review, American Economic Association, vol. 97(2), pages 153-158, May.
  6. Donald J. Brown & Caterina Calsamiglia, 2005. "The Nonparametric Approach to Applied Welfare Analysis," Cowles Foundation Discussion Papers 1507, Cowles Foundation for Research in Economics, Yale University.
  7. Laurens Cherchye & Bram De Rock & Frederic Vermeulen, 2009. "Opening the black box of intrahousehold decision making: theory and nonparametric empirical tests of general collective consumption models," ULB Institutional Repository 2013/98561, ULB -- Universite Libre de Bruxelles.
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