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Revealed preference in a discrete consumption space

Author

Listed:
  • Matthew Polisson

    (Institute for Fiscal Studies and University of Bristol)

  • John Quah

    (Institute for Fiscal Studies)

Abstract

We show that an agent maximizing some utility function on a discrete (as opposed to continuous) consumption space will obey the generalized axiom of revealed preference (GARP) so long as the agent obeys cost efficiency. Cost efficiency will hold if there is some good, outside the set of goods being studied by the modeler, that can be consumed by the agent in continuous quantities. An application of Afriat's Theorem then guarantees that there is a strictly increasing utility function on the discrete consumption space that rationalizes price and demand observations in that space.

Suggested Citation

  • Matthew Polisson & John Quah, 2012. "Revealed preference in a discrete consumption space," IFS Working Papers W12/03, Institute for Fiscal Studies.
    • Handle: RePEc:ifs:ifsewp:12/03
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    References listed on IDEAS

    as
    1. A. Fostel & H. Scarf & M. Todd, 2004. "Two new proofs of Afriat’s theorem," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 24(1), pages 211-219, July.
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    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory

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