Stochastic Revealed Preference and Rationalizability
AbstractThis paper explorers rationalizability issues for finite sets of observations of stochastic choice in the framework introduced by Bandyopadhyay et al. (JET, 1999). Is is argued that a useful approach is to consider indirect preferences on budgets instead of direct preferences on commodity bundles. Stochastic choices are rationalizable in terms of stochastic orderings on the normalized price space if and only if there exits a solution to a linear feasibility problem. Together with the weak axiom of stochastic revealed preference the existence of a solution implies rationalizability in terms of stochastic orderings on the commodity space. Furthermore it is shown that the problem of finding sufficiency conditions for binary choice probabilities to be rationalizable bears similarities to the problem considered here.
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Bibliographic InfoPaper provided by Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen in its series Ruhr Economic Papers with number 0070.
Length: 20 pages
Date of creation: Sep 2008
Date of revision:
Other versions of this item:
- Jan Heufer, 2011. "Stochastic revealed preference and rationalizability," Theory and Decision, Springer, vol. 71(4), pages 575-592, October.
- D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-11-04 (All new papers)
- NEP-DCM-2008-11-04 (Discrete Choice Models)
- NEP-ORE-2008-11-04 (Operations Research)
- NEP-UPT-2008-11-04 (Utility Models & Prospect Theory)
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