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Testable Restrictions On The Equilibrium Manifold Under Random Preferences

  • Andrés Carvajal

    ()

General equilibrium theory was criticized for its apparent irrefutability, as seemingly implied by the Sonnenschein-Mantel-Debreu theorem. This view was challenged by Brown and Matzkin (1996), who showed the existence of testable restrictions on the equilibrium manifold. Brown and Matzkin, however, maintain the assumption that individual preferences are invariant (against psychological evidence). I consider the Brown- Matzkin problem under random preferences: for each profile of endowments one observes a distribution of prices; does there exist a probability distribution of preferences that explains the observed distributions of prices via Walrasian equilibria? I argue that even under random utilities general equilibrium theory is falsifiable.

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Paper provided by BANCO DE LA REPÚBLICA in its series BORRADORES DE ECONOMIA with number 001899.

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Length: 63
Date of creation: 31 Jan 2003
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Handle: RePEc:col:000094:001899
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  1. DEBREU, Gérard, . "Economies with a finite set of equilibria," CORE Discussion Papers RP -67, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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  3. Allen, B., 1985. "Continuous random selections from the equilibrium correspondence," CORE Discussion Papers 1985020, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  4. Donald J. Brown & Rosa L. Matzkin, 1995. "Testable Restrictions on the Equilibrium Manifold," Cowles Foundation Discussion Papers 1109, Cowles Foundation for Research in Economics, Yale University.
  5. DEBREU, Gérard, . "Smooth preferences," CORE Discussion Papers RP -132, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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  13. Krebs, Tom, 2004. "Testable implications of consumption-based asset pricing models with incomplete markets," Journal of Mathematical Economics, Elsevier, vol. 40(1-2), pages 191-206, February.
  14. Shafer, Wayne & Sonnenschein, Hugo, 1993. "Market demand and excess demand functions," Handbook of Mathematical Economics, in: K. J. Arrow & M.D. Intriligator (ed.), Handbook of Mathematical Economics, edition 4, volume 2, chapter 14, pages 671-693 Elsevier.
  15. Rosa L. Matzkin & Marcel K. Richter, 1987. "Testing Strictly Concave Rationality," Cowles Foundation Discussion Papers 844, Cowles Foundation for Research in Economics, Yale University.
  16. P.A. Chiappori & I. Ekeland & F. Kubler & H.M. Polemarchakis, 2002. "Testable Implications of General Equilibrium Theory: a differentiable approach," Working Papers 2002-10, Brown University, Department of Economics.
  17. Mantel, Rolf R., 1974. "On the characterization of aggregate excess demand," Journal of Economic Theory, Elsevier, vol. 7(3), pages 348-353, March.
  18. Hausman, Daniel M., 2000. "Revealed preference, belief, and game theory," Economics and Philosophy, Cambridge University Press, vol. 16(01), pages 99-115, April.
  19. Diewert, W. E., 1977. "Generalized slutsky conditions for aggregate consumer demand functions," Journal of Economic Theory, Elsevier, vol. 15(2), pages 353-362, August.
  20. Kubler, Felix, 2003. "Observable restrictions of general equilibrium models with financial markets," Journal of Economic Theory, Elsevier, vol. 110(1), pages 137-153, May.
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