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Revealed cardinal preference

I prove that as long as we allow the marginal utility for money (lambda) to vary between purchases (similarly to the budget) then the quasi-linear and the ordinal budget-constrained models rationalize the same data. However, we know that lambda is approximately constant. I provide a simple constructive proof for the necessary and sufficient condition for the constant lambda rationalization, which I argue should replace the Generalized Axiom of Revealed Preference in empirical studies of consumer behavior.

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File URL: http://www.econ.ed.ac.uk/papers/id212_esedps.pdf
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Paper provided by Edinburgh School of Economics, University of Edinburgh in its series ESE Discussion Papers with number 212.

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Length: 8
Date of creation: 18 Jan 2012
Date of revision:
Handle: RePEc:edn:esedps:212
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  1. Douglas M. Gale & Shachar Kariv & Syngjoo Choi & Raymond Fisman, 2007. "Revealing Preferences Graphically: An Old Method Gets a New Tool Kit," American Economic Review, American Economic Association, vol. 97(2), pages 153-158, May.
  2. Richard W. Blundell & Martin Browning & Ian A. Crawford, 2003. "Nonparametric Engel Curves and Revealed Preference," Econometrica, Econometric Society, vol. 71(1), pages 205-240, January.
  3. Cherchye, L.J.H. & de Rock, B. & Vermeulen, F.M.P., 2005. "Opening the Black Box of Intra-Household Decision-Making : Theory and Non-Parametric Empirical Tests of General Collective Consumption Models," Discussion Paper 2005-51, Tilburg University, Center for Economic Research.
  4. Syngjoo Choi & Shachar Kariv & Wieland Müller & Dan Silverman, 2011. "Who Is (More) Rational?," NBER Working Papers 16791, National Bureau of Economic Research, Inc.
  5. Donald Brown & Caterina Calsamiglia, 2007. "The Nonparametric Approach to Applied Welfare Analysis," Economic Theory, Springer, vol. 31(1), pages 183-188, April.
  6. Herbert E. Scarf & Ana Fostel & Michael J. Todd, 2004. "Two New Proofs of Afriat's Theorem," Yale School of Management Working Papers ysm377, Yale School of Management.
  7. Marcel Richter & Kam-Chau Wong, 2005. "Infinite inequality systems and cardinal revelations," Economic Theory, Springer, vol. 26(4), pages 947-971, November.
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