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Quantification of preferences in markets

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  • Jörnsten, Kurt
  • Ubøe, Jan

Abstract

In this paper we quantify agent preferences in a market. In our framework every agent has a utility level associated with each transaction, and we assume that the probability of a feasible market transaction increases with an increase in total utility. It is surprising to observe that this simple behavioral principle induces a usually unique probability measure that can be constructed by a fast numerical algorithm. This unusual combination of a rigorous model and a fast numerical algorithm makes it possible to construct a well-defined set of preferences that implies a set of observed commodity prices.

Suggested Citation

  • Jörnsten, Kurt & Ubøe, Jan, 2010. "Quantification of preferences in markets," Journal of Mathematical Economics, Elsevier, vol. 46(4), pages 453-466, July.
  • Handle: RePEc:eee:mateco:v:46:y:2010:i:4:p:453-466
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    References listed on IDEAS

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    1. Krebs, Tom, 1997. "Statistical Equilibrium in One-Step Forward Looking Economic Models," Journal of Economic Theory, Elsevier, vol. 73(2), pages 365-394, April.
    2. Anas, Alex, 1983. "Discrete choice theory, information theory and the multinomial logit and gravity models," Transportation Research Part B: Methodological, Elsevier, vol. 17(1), pages 13-23, February.
    3. repec:cup:apsrev:v:63:y:1969:i:02:p:521-525_26 is not listed on IDEAS
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    Cited by:

    1. Kurt Jornsten & Jan Ubøe, 2009. "Strategic Pricing of Commodities," Applied Mathematical Finance, Taylor & Francis Journals, vol. 16(5), pages 385-399.

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