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Referential Revealed Preference Theory

Author

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  • Hassan Nosratabadi

    (Rutgers, The State University Of New Jersey)

Abstract

References can influence choice. One of the well-studied cases is when a decoy is added to the menu. However small in magnitude, decoy effect violates the weak axiom of revealed preferences (WARP). In order to explain the small deviation from the classical revealed preference theory, I decompose WARP into independent axioms in order to only remove the ones which are inconsistent with the this effect. This minimal deviation produces the referential revealed preference theory that keeps the strong predictive power offered in the classical theory while explaining the referential effect.

Suggested Citation

  • Hassan Nosratabadi, 2017. "Referential Revealed Preference Theory," Departmental Working Papers 201707, Rutgers University, Department of Economics.
    • Handle: RePEc:rut:rutres:201707
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    Cited by:

    1. Victor H. Aguiar & Roberto Serrano, 2018. "Cardinal Revealed Preference, Price-Dependent Utility, and Consistent Binary Choice," Working Papers 2018-3, Brown University, Department of Economics.
    2. Hassan Nosratabadi, 2017. "WARP Decompositions," Departmental Working Papers 201708, Rutgers University, Department of Economics.
    3. Hassan Nosratabadi, 2017. "Rational Filters," Departmental Working Papers 201706, Rutgers University, Department of Economics.
    4. Aguiar, Victor H. & Serrano, Roberto, 2021. "Cardinal revealed preference: Disentangling transitivity and consistent binary choice," Journal of Mathematical Economics, Elsevier, vol. 94(C).

    More about this item

    Keywords

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    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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