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Afriat in the lab

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  • van Bruggen, Paul
  • Heufer, Jan

Abstract

Varian (1988) showed that the utility maximization hypothesis cannot be falsified when only a subset of goods is observed. We show that this result does not hold under the assumptions that unobserved prices and expenditures remain constant. These assumptions are naturally satisfied in laboratory settings where the world outside the lab remains unchanged during the experiment. Hence for so-called induced budget experiments the Generalized Axiom of Revealed Preference is a necessary and sufficient condition for utility maximization in general, not just over lab goods. Lab experiments are therefore a valid tool to put the utility maximization hypothesis to the test.

Suggested Citation

  • van Bruggen, Paul & Heufer, Jan, 2017. "Afriat in the lab," Journal of Economic Theory, Elsevier, vol. 169(C), pages 546-550.
  • Handle: RePEc:eee:jetheo:v:169:y:2017:i:c:p:546-550
    DOI: 10.1016/j.jet.2017.03.007
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    References listed on IDEAS

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    Cited by:

    1. Drichoutis, Andreas C. & Nayga, Rodolfo, 2017. "Economic rationality under cognitive load," MPRA Paper 81111, University Library of Munich, Germany.

    More about this item

    Keywords

    Afriat's Theorem; Experimental economics; GARP; Revealed preference; Utility maximization;

    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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