Revealed preference in a discrete consumption space
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.
|Date of creation:||07 Mar 2012|
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- 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.
- M.J. Todd & A. Fostel & H.E. Scarf, 2004. "Two New Proofs of Afriat's Theorem," Econometric Society 2004 North American Summer Meetings 632, Econometric Society.
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"The Nonparametric Approach to Applied Welfare Analysis,"
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1507, Cowles Foundation for Research in Economics, Yale University.
- Donald Brown & Caterina Calsamiglia, 2007. "The Nonparametric Approach to Applied Welfare Analysis," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 31(1), pages 183-188, April.
- Forges, Françoise & Minelli, Enrico, 2009.
"Afriat's theorem for general budget sets,"
Journal of Economic Theory,
Elsevier, vol. 144(1), pages 135-145, January.
- W. E. Diewert, 1973. "Afriat and Revealed Preference Theory," Review of Economic Studies, Oxford University Press, vol. 40(3), pages 419-425.
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