Revealed Preference with Stochastic Demand Correspondence
AbstractWe unify and expand the theory of consumer’s behavior, based on Samuelson’s Weak Axiom of Revealed Preference, to permit simultaneously both random choice and non-singleton choice sets. We provide a consistency postulate for demand behavior when such behavior is represented in terms of a stochastic demand correspondence. When the consumer spends her entire wealth, our rationality postulate is equivalent to a condition we term stochastic substitutability. This equivalence generates: (i) Samuelson’s Substitution Theorem, (ii) the central result in Bandyopadhyay, Dasgupta and Pattanaik (2004) and (iii) a version pertinent to deterministic demand correspondences (which independently yields Samuelson’s Substitution Theorem), as alternative special cases. Relevant versions of the non-positivity of the own substitution effect, the demand theorem and homogeneity of degree zero in prices and wealth for the consumer’s demand behavior, also follow as corollaries in every case.
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Bibliographic InfoPaper provided by University of Nottingham, School of Economics in its series Discussion Papers with number 07/06.
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Stochastic demand correspondence; weak axiom of revealed preference; weak axiom of stochastic revealed preference; general substitution theorem; demand theorem.;
Other versions of this item:
- Dasgupta Indraneel & Pattanaik P. K, 2010. "Revealed Preference with Stochastic Demand Correspondence," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 10(1), pages 1-21, August.
- D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
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