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Stochastic Revealed Preference and Rationalizability

  • Jan Heufer

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This paper explorers rationalizability issues for finite sets of observations of stochastic choice in the framework introduced by Bandyopadhyay et al. (JET, 1999). Is is argued that a useful approach is to consider indirect preferences on budgets instead of direct preferences on commodity bundles. Stochastic choices are rationalizable in terms of stochastic orderings on the normalized price space if and only if there exits a solution to a linear feasibility problem. Together with the weak axiom of stochastic revealed preference the existence of a solution implies rationalizability in terms of stochastic orderings on the commodity space. Furthermore it is shown that the problem of finding sufficiency conditions for binary choice probabilities to be rationalizable bears similarities to the problem considered here.

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Paper provided by Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen in its series Ruhr Economic Papers with number 0070.

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Length: 20 pages
Date of creation: Sep 2008
Date of revision:
Handle: RePEc:rwi:repape:0070
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  1. Bandyopadhyay, Taradas & Bandyopadhyay, Bandyopadhyay & Pattanaik, Prasanta K., 2002. "Demand Aggregation and the Weak Axiom of Stochastic Revealed Preference," Journal of Economic Theory, Elsevier, vol. 107(2), pages 483-489, December.
  2. Indraneel Dasgupta, 2011. "Contraction consistent stochastic choice correspondence," Social Choice and Welfare, Springer, vol. 37(4), pages 643-658, October.
  3. Richter, Marcel K., 1979. "Duality and rationality," Journal of Economic Theory, Elsevier, vol. 20(2), pages 131-181, April.
  4. Dasgupta, Indraneel, 2009. "Supply Theory sans Profit-Maximization," IZA Discussion Papers 4018, Institute for the Study of Labor (IZA).
  5. Little, James T., 1979. "Indirect preferences," Journal of Economic Theory, Elsevier, vol. 20(2), pages 182-193, April.
  6. Indraneel Dasgupta, 2005. "Consistent firm choice and the theory of supply," Economic Theory, Springer, vol. 26(1), pages 167-175, 07.
  7. José Alcantud, 2006. "Notes and Comments: Stochastic demand correspondences and their aggregation properties," Decisions in Economics and Finance, Springer, vol. 29(1), pages 55-69, 05.
  8. Bandyopadhyay, Taradas & Dasgupta, Indraneel & Pattanaik, Prasanta K., 1999. "Stochastic Revealed Preference and the Theory of Demand," Journal of Economic Theory, Elsevier, vol. 84(1), pages 95-110, January.
  9. Varian, Hal R, 1982. "The Nonparametric Approach to Demand Analysis," Econometrica, Econometric Society, vol. 50(4), pages 945-73, July.
  10. Taradas Bandyopadhyay & Indraneel Dasgupta & Prasanta Pattanaik, 2004. "A general revealed preference theorem for stochastic demand behavior," Economic Theory, Springer, vol. 23(3), pages 589-599, March.
  11. Shasikanta Nandeibam, 2009. "On probabilistic rationalizability," Social Choice and Welfare, Springer, vol. 32(3), pages 425-437, March.
  12. Daniel McFadden, 2005. "Revealed stochastic preference: a synthesis," Economic Theory, Springer, vol. 26(2), pages 245-264, 08.
  13. Sakai, Yasuhiro, 1977. "Revealed favorability, indirect utility, and direct utility," Journal of Economic Theory, Elsevier, vol. 14(1), pages 113-129, February.
  14. Barbera, Salvador & Pattanaik, Prasanta K, 1986. "Falmagne and the Rationalizability of Stochastic Choices in Terms of Random Orderings," Econometrica, Econometric Society, vol. 54(3), pages 707-15, May.
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