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Quasiconcave Preferences and Choices on a Probability Simplex – A Nonparametric Analysis

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  • Heufer, Jan

Abstract

A nonparametric approach is presented to test whether decisions on a probability simplex could be induced by quasiconcave preferences. Necessary and sufficient conditions are presented. If the answer is affirmative, the methods developed here allow to reconstruct bounds on indifference curves. Furthermore we can construct quasiconcave utility functions in analogy to the utility function constructed in the proof of Afriat's Theorem. The approach is of interest for decisions under risk, stochastic choice, and ex-ante fairness considerations. The method is particularly suitable for data collected in a laboratory experiment.

Suggested Citation

  • Heufer, Jan, 2010. "Quasiconcave Preferences and Choices on a Probability Simplex – A Nonparametric Analysis," Ruhr Economic Papers 179, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    • Handle: RePEc:zbw:rwirep:179
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    More about this item

    Keywords

    Afriat's theorem; deterministic preferences; decisions under risk; experimental economcics; nonparametric methods; revealed preference; stochastic choice;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

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