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Transitivity of Preferences: When Doest it Matter ?

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  • Laurens Cherchye
  • Thomas Demuynck
  • Bram De Rock

Abstract

We define the empirical conditions on prices and incomes under which transitivity of preferences has specific testable implications. In particular, we set out necessary and sufficient requirements for budget sets under which consumption choices can violate SARP (Strong Axiom of Revealed Preferences) but not WARP (Weak Axiom of Revealed Preferences). As SARP extends WARP by additionally imposing transitive preferences, this effectively defines the conditions under which transitivity is separately testable. Our findings have considerable practical relevance, as transitivity conditions are known to substantially aggravate the computational burden of empirical revealed preference analysis. Our characterization takes the form of triangular conditions that must hold for all three-element subsets of normalized prices, and which are easy to verify in practice. We demonstrate their practical use through two short empirical applications.
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  • Laurens Cherchye & Thomas Demuynck & Bram De Rock, "undated". "Transitivity of Preferences: When Doest it Matter ?," ULB Institutional Repository 2013/262696, ULB -- Universite Libre de Bruxelles.
  • Handle: RePEc:ulb:ulbeco:2013/262696
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    References listed on IDEAS

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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. Laurens Cherchye & Bram De Rock & Thomas Demuynck, 2017. "Bounding Counterfactual Demand with Unobserved Heterogeneity and Endogenous Expenditures," Working Papers ECARES ECARES 2017-41, ULB -- Universite Libre de Bruxelles.
    3. COSAERT Sam, 2017. "What types are there?," LISER Working Paper Series 2017-01, LISER.

    More about this item

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

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