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A revealed preference approach to approximate utility maximisation

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  • Dziewulski, Paweł

Abstract

We develop a revealed preference method for studying preferences of individuals whose choices may be inconsistent with utility maximisation. We show that acyclicity of the strict revealed preference is necessary and sufficient for the data to be rationalisable with approximate utility maximisation. In this model, an alternative is selected from a menu only if its utility is not significantly lower than that of any other available option. This allows us to test for consumer behaviour that is subject to imprecision, vagueness of judgement, or incommensurability, among others. Our results require minimal assumptions on the empirical framework, making them applicable to studies of choices over consumption bundles, state-contingent consumption, and lotteries.

Suggested Citation

  • Dziewulski, Paweł, 2025. "A revealed preference approach to approximate utility maximisation," Journal of Economic Theory, Elsevier, vol. 228(C).
    • Handle: RePEc:eee:jetheo:v:228:y:2025:i:c:s0022053125001097
    DOI: 10.1016/j.jet.2025.106063
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    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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