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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. Herbert E. Scarf & Ana Fostel & Michael J. Todd, 2004. "Two New Proofs of Afriat's Theorem," Yale School of Management Working Papers ysm377, Yale School of Management.
  2. 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.
  3. Syngjoo Choi & Shachar Kariv & Wieland Mueller & Dan Silverman, 2011. "Who Is (More) Rational?," Vienna Economics Papers 1105, University of Vienna, Department of Economics.
  4. 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.
  5. Richard Blundell & Martin Browning & Ian Crawford, 2002. "Nonparametric Engel Curves and Revealed Preference," CAM Working Papers 2002-04, University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics.
  6. Cherchye, Laurens & De Rock, Bram & Vermeulen, Frederic, 2005. "Opening the Black Box of Intra-Household Decision-Making: Theory and Non-Parametric Empirical Tests of General Collective Consumption Models," IZA Discussion Papers 1603, Institute for the Study of Labor (IZA).
  7. Marcel Richter & Kam-Chau Wong, 2005. "Infinite inequality systems and cardinal revelations," Economic Theory, Springer, vol. 26(4), pages 947-971, November.
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