On the rationalizability of observed consumers’ choices when preferences depend on budget sets and (potentially) on anything else
AbstractWe prove that defining consumers’ preferences over budget sets is both necessary and sufficient to make every fully informative and finite set of observed consumption choices rationalizable by a collection of preferences which are transitive, complete, and monotone with respect to own consumption. Our finding has two important theoretical consequences. First, assuming that preferences depend on budget sets is illegitimate under the scientific commitments of revealed preference theory. Second, as long as consumers’ preferences are not defined over budget sets, we can assume that preferences depend on observable objects other than own consumption without compromising the logical possibility to reject the model against observation. We however point out that, despite this logical possibility, in practice it can be almost impossible to reject a model where preferences are defined over objects that depend on budget sets. As an example of this we show that if preferences are defined over consumption choices of other individuals then rationalization fails only in cases of negligible practical interest.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University of Modena and Reggio E., Dept. of Economics in its series Center for Economic Research (RECent) with number 052.
Length: pages 14
Date of creation: Nov 2010
Date of revision:
Revealed Preferences; Budget Sets; Rational Preferences; Rationalizability;
Other versions of this item:
- Ennio Bilancini, 2011. "On the rationalizability of observed consumers’ choices when preferences depend on budget sets and (potentially) on anything else," Journal of Economics, Springer, vol. 102(3), pages 275-286, April.
- B40 - Schools of Economic Thought and Methodology - - Economic Methodology - - - General
- D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-12-04 (All new papers)
- NEP-DCM-2010-12-04 (Discrete Choice Models)
- NEP-UPT-2010-12-04 (Utility Models & Prospect Theory)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Laurens Cherchye & Bram De Rock & Frederic Vermeulen, 2010.
"An Afriat theorem for the collective model of household consumption,"
ULB Institutional Repository
2013/131711, ULB -- Universite Libre de Bruxelles.
- Cherchye, Laurens & De Rock, Bram & Vermeulen, Frederic, 2010. "An Afriat Theorem for the collective model of household consumption," Journal of Economic Theory, Elsevier, vol. 145(3), pages 1142-1163, May.
- Cherchye, L.J.H. & Rock, B. de & Vermeulen, F.M.P., 2008. "An Afriat Theorem for the Collective Model of Household Consumption," Discussion Paper 2008-72, Tilburg University, Center for Economic Research.
- Cherchye, Laurens & De Rock, Bram & Vermeulen, Frederic, 2008. "An Afriat Theorem for the Collective Model of Household Consumption," IZA Discussion Papers 3794, Institute for the Study of Labor (IZA).
- Laurens Cherchye & Bram De Rock & Frederic Vermeulen, 2008. "An Afriat Theorem for the collective model of household consumption," Center for Economic Studies - Discussion papers ces0825, Katholieke Universiteit Leuven, Centrum voor Economische Studiën.
- Andrés Carvajal, 2010. "The testable implications of competitive equilibrium in economies with externalities," Economic Theory, Springer, vol. 45(1), pages 349-378, October.
- Ng, Yew-Kwang, 1987. "Diamonds Are a Government's Best Friend: Burden-Free Taxes on Goods Valued for Their Values," American Economic Review, American Economic Association, vol. 77(1), pages 186-91, March.
- Duggan, John, 1999. "A General Extension Theorem for Binary Relations," Journal of Economic Theory, Elsevier, vol. 86(1), pages 1-16, May.
- Pollak, Robert A, 1978. "Endogenous Tastes in Demand and Welfare Analysis," American Economic Review, American Economic Association, vol. 68(2), pages 374-79, May.
- Francoise Forges & Enrico Minelli, 2006.
"Afriat’s Theorem for General Budget Sets,"
CESifo Working Paper Series
1703, CESifo Group Munich.
- Chambers, Christopher P. & Echenique, Federico, 2009. "Supermodularity and preferences," Journal of Economic Theory, Elsevier, vol. 144(3), pages 1004-1014, May.
- Ed Hopkins & Tatiana Kornienko, 2004.
"Running to Keep in the Same Place: Consumer Choice as a Game of Status,"
ESE Discussion Papers
92, Edinburgh School of Economics, University of Edinburgh.
- Ed Hopkins & Tatiana Kornienko, 2004. "Running to Keep in the Same Place: Consumer Choice as a Game of Status," American Economic Review, American Economic Association, vol. 94(4), pages 1085-1107, September.
- Clark, Andrew E. & Frijters, Paul & Shields, Michael A., 2007.
"Relative Income, Happiness and Utility: An Explanation for the Easterlin Paradox and Other Puzzles,"
IZA Discussion Papers
2840, Institute for the Study of Labor (IZA).
- Andrew E. Clark & Paul Frijters & Michael A. Shields, 2008. "Relative Income, Happiness, and Utility: An Explanation for the Easterlin Paradox and Other Puzzles," Journal of Economic Literature, American Economic Association, vol. 46(1), pages 95-144, March.
- repec:ner:leuven:urn:hdl:123456789/122664 is not listed on IDEAS
- Donald J. Brown & Rosa L. Matzkin, 1995.
"Testable Restrictions on the Equilibrium Manifold,"
Cowles Foundation Discussion Papers
1109, Cowles Foundation for Research in Economics, Yale University.
- Balasko, Yves, 2003. "Economies with price-dependent preferences," Journal of Economic Theory, Elsevier, vol. 109(2), pages 333-359, April.
- Suzumura, Kataro, 1976. "Remarks on the Theory of Collective Choice," Economica, London School of Economics and Political Science, vol. 43(172), pages 381-90, November.
- Matzkin, Rosa L, 1991. "Axioms of Revealed Preference for Nonlinear Choice Sets," Econometrica, Econometric Society, vol. 59(6), pages 1779-86, November.
- Chiappori, Pierre-Andre, 1988. "Rational Household Labor Supply," Econometrica, Econometric Society, vol. 56(1), pages 63-90, January.
- repec:ner:leuven:urn:hdl:123456789/429594 is not listed on IDEAS
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.